You closed the deal and you made the sale. Great!
But if you made the sale on terms, your job is not finished. A successful business can close down if it runs out of cash. If you sell on extended terms, sooner or later (hopefully sooner), you will realize that your increased revenue does not mean increased money in the bank. You have to make sure you receive payment in an agreed upon amount of time.
For this reason, as a small business owner, you should have your bookkeeper run and monitor the Aged Accounts Receivables report on a regular basis (monthly at a minimum). An Aged Accounts Receivables report shows you how much money you are owed by each customer and the age of the account. The report is typically broken down into columns of less than 30 days old, 31-60 days old, 61-90 days old and over 90 days old. Some accounting software systems, like QuickBooks, will let you manipulate the columns to show different categories.
Why do you need to be diligent in reviewing your Aged Accounts Receivables report? Selling on terms comes with a cost. As long as the money remains unpaid to you, you can’t use that money to pay your employees or buy supplies. If you have a line of credit, you don’t have the money to pay down the line which cost you interest. Also, the longer the account remains unpaid the less likely you are to see the money because it may mean they are having financial trouble.
Related: Don’t Neglect the Bookkeeping
I am not suggesting that you not sell on terms. A lot of businesses couldn’t operate if they didn’t have accounts receivable. But I am suggesting that you or your accountant monitor your Aged Accounts Receivables report and act quickly on accounts to keep them from becoming too old.
If you are experiencing problems monitoring your aging receivables, contact me and I can work with you to develop a plan that will help you manage these accounts more effectively.
[schema type=”person” name=”Steve Webster” city=”Clarksville” state=”Indiana” postalcode=”47129″ ]