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5 Tips to Improve Your Accounts Receivable Turnover

Small businesses and startups are often guilty of ignoring their accounting practices because they think mundane accounting tasks don’t matter much. However, accounting is responsible for maintaining cash flow in and out of the business.

And what is a business with unhealthy cash flow? A slowly sinking ship.

A component of accounting practices involved in running a business is the accounts receivable turnover. It should be a top priority for the business’s accountants, no matter the size of the business itself. If your business is making strides in sales but isn’t receiving the money from clients, that can’t really be counted as revenue.

Before we get too deep into the topic, let’s define what accounts receivable turnover means.

Accounts receivable turnover roughly equates to how effective your business is at converting its accounts receivable into cash in the bank. Most businesses follow a detailed accounts receivable flowchart that is implemented in their automated systems.

In this article, we’ll talk about 5 tips to improve your accounts receivable turnover.

1. Talk to Your Clients

The first thing you need to do in order to improve your accounts receivable turnover is to talk to your clients regularly and establish a strong relationship. Clients who’re regularly in touch with you will be happy to pay when it’s time to invoice them.

Always do the courtesy of calling your clients to check in on how their business, or even how they personally are performing. These small gestures can pay dividends and make the client feel more taken care of, so they’ll be happy to pay you.

2. Invoice on Time

This is a general rule of thumb when it comes to running a business, but we feel it should be emphasized anyway. Always invoice your clients on time. Setting expectations with clients on when they can expect to be invoiced, and then actually invoicing at the set dates show the clients that you’re serious about cash and the health of your business.

3. Set Payment Terms

There should be clear cut and defined payment terms that are agreed upon by your client before you sign a contract with them.

For example, you should agree on the number of days that can pass before the client has to pay their invoice. Usually, it’s a good idea to have the client pay in no later than 30 days. In formal terms, that would be Net 30 days.

Furthermore, there should be a definite penalty associated with late payments. Don’t feel bad or scared about including late payment fees, as they deter clients from paying after the due date. Late payment fees are usually a percentage (which your client has agreed on) of your original invoice amount.

If you sell products or services with a high dollar value, it can also be useful to offer payment plans so your clients have flexibility when it comes to paying their invoices.

4. Flexible Payment Options

In the present day and age, there is a multitude of payment options available, and you should definitely offer some of them to your clients so they’ll have an easier time actually paying you.

Not everyone has the time to go to a bank and wire money. Digital payments are easy, secure, and fast, so you should definitely be using those instead. PayPal and Square for example make digital payments extremely simple and efficient.

 

5. Invoice Reminders and Follow-ups

Don’t be afraid of sending payment reminders to your clients, just be sure to use the right language. Polite and friendly payment reminders can go a long way in increasing your accounts receivable turnover in a healthy state.

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