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Poor management of accounts receivables is the enemy of cash flow. For small businesses today, 30-day terms all too often extend to 60, 90 and 120 days before payment is made.

CPAs can help their small business clients better manage cash flow by proactively talking about their payment policies and procedures. Now is the time to help your clients set a 2010 goal of implementing payment acceptance best practices. Why?  Because by implementing sound accounts receivable policies with the objective of lowering working capital, businesses will achieve an operational advantage over their competitors.

Business is, ultimately, about getting paid.  Businesses need to have enough working capital to fund their operations while they wait to get paid.  If a company can improve its processes and get paid a little earlier, this means the company would need less working capital to fund its operations. Companies that use payment technology to run more efficiently require lower working capital.

And a lower working capital requirement in turn reduces the costs of financing working capital. Financing working capital can come from many sources (some more expensive than others). With the tight credit market small businesses are currently experiencing, implementing AR best practices can reduce credit risk, automate manual paper-driven processes and provide skilled invoice follow up support – which combine to produce a more efficient payment cycle.

At VantageB2B.com, our analyst work with small businesses and their CPAs as payment advisors, delivering professional payment resources combining AR best practices with Level 3 commercial card payment acceptance to lower costs, increase productivity and enhance security.

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Don't Be Afraid of Accounts Receivable

Posted on August 3, 2009 05:34 by Ty Hardison

Many small and midsize businesses (SMB) we consult with are afraid of implementing policies and procedures to better manage their accounts receivable (A/R) because they are scared of losing customers. The thought is that if they enforce the credit terms established during contract negotiations that their buyers will simply find someone else to do the job.

Are you scared of your customers? Is this fear preventing you from achieving A/R best practices? Don’t be afraid of making sure your customers pay you on time. The strength of your A/R processes sets the tone of your ongoing working relationship. If you allow buyers to explore how far they can push their payables and get away with it then what are you teaching your customers? Are you broadcasting that you are not good at managing and collecting your receivables? What else might you not be good at?

Successful SMB understand the impact of making good impressions. They create a professional web presence; develop impressive literature; record phone tree navigations to different departments and more, all in an effort to emulate the buyers’ experience of working with their larger industry counterparts. It’s important for company management to understand that how they operate trade credit is also a reflection on their business. Don’t let a fear of enforcing your credit terms permeate through your entire organization. Best practice trade credit administration policies that are clearly communicated to your staff and to your buyers will strengthen your reputation for running a tight ship.

Extending trade credit is essential to attracting and retaining customers but it comes with the responsibility of managing the costs of credit. For example, selling a 60 day term provides a "sales" benefit on the front-end to win business and separate you from competitors. Selling a 30 day term yet allowing your buyers to slip to 60 days is not a smart use of credit. If you originally negotiated a 30 day term only to find that your buyer is slow paying in as much as 60 days - but otherwise is a good customer - consider the carrot of bringing them current, then extending them 60 day terms, with the understanding that you expect them to honor your terms. This creates a better long term customer relationship verses doing nothing at all because at least you are getting paid. And keeping your customers within the credit terms you provide helps your organization better manage your cash flow.

It is the responsibility of the seller to manage their credit terms and failing to do so creates uncertainty for both the seller (When will payment arrive? Is my buyer doing okay? What’s my risk? How should I collect?) and the buyer (Will they deliver another order? Can I delay another week while I pay another vendor first?). Unchecked, this lack of structure, damages the fabric of the relationship.

It’s best to start your buyer relationship under a structured procedure for trade credit administration rather than trying to re-train them later. If you are moving your organization from lax trade credit policies to structured administration, this requires thoughtful client communication. Are you the best at what you do or the best financing source of free money? Maybe it’s both, but knowing how your clients perceive you is important as you communicate your improvements to your trade credit administration. Position this communication as a positive result of your company’s growth.

While flexibility in credit decisions should always be maintained and based on the best available information at the time, having structured policies and resources in place to help make these decisions is key. Are you ready to implement AR best practices?

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Capitalizing on Your Cash Flow

Posted on July 16, 2009 01:13 by Ty Hardison

How important do you consider your cash flow?
Many small businesses focus the majority of their attention on sales but cash flow is king.  This video recommends: 

  • Shorting your cash flow cycle
  • Taking Early Pay Discounts
  • Cutting Costs
  • Using Lock Box services to process and deposit payments 

A good way to improve cash flow is to outsource your trade credit.  Trade Credit Express is a business payment platform to outsource your trade credit administration and accounts receivable (A/R) financing providing your business with the payment speed of accepting a credit card, while extending improved trade credit terms for your customers. 

Outsourcing your trade credit administration is a smart strategic decision.
If your company is like most, much of your cash is tied up because you’ve been lending it to your customers through trade credit, providing free, short-term loans to your buyers.  Additionally, most small and mid sized businesses don't have the scale to operate trade credit operations cost   effectively.  Just like outsourcing other business functions like payroll processing, businesses can benefit by outsourcing the administrative functions of operating an in-house trade credit program for B2B transactions.

Start Outsourcing to Achieve:

  • Increased capital availability
  • Faster payment cycles on invoices
  • Improved debt to income ratios
  • Reduced risk of non-payment on invoices or customer bankruptcy
  • Reduced administrative burdens of extending and managing trade credit
  • Increased sales to new and existing customers by offering better terms

Stop Factoring
Outsourcing has distinct advantages over "factoring" including lower advance rates and greater value by more efficiently handling trade credit functions to reduce your administration expenses.  Increasing credit capacity in response to actual growth rather than being limited by historic performance makes an enormous difference to a growing company.

 

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