Free up cash by optimizing your working capital | accounts receivable (3/4)

Good customers contribute to your company’s liquidity

We told you in our previous article about how efficient inventory management can contribute to improving your working capital.

Yet…effective working capital management goes beyond efficient inventory management. It also includes strict credit controlling activities to manage your receivables as well as a maximum optimization of your accounts payable.

In this article, we present how a good management of your accounts receivable can contribute to your company’s liquidity. Because… the faster your customers pay, the more money you have available to reuse or invest. 

Tips and tricks

Below, we share some tips that might immediately improve your management of accounts receivable:

• Agree with your sales personnel on clear payment terms. Make the negotiation room clear for your sales personnel in which they are allowed to negotiate with (potential) customers.
• Determine together with your sales department clear financial sanity indicators for new and existing customers. This will help to avoid doing business with defaulters.
• Analyze and categorize your customers. Determine afterwards the maximum credit exposure and standard payment terms for every category.
• Analyze the payment behaviour of your customers to pro-actively identify negative evolutions. Avoid as such losing money by customer bankruptcies.
• Draft your invoices as clear and transparent as possible. This will aid you in avoiding late customer payments, caused by ongoing discussions.
• Invoice from your IT system and strive for a so-called “one-press-on-the-button” invoicing. This will shift the prior manual efforts from invoice creation to invoice controlling.
• Invoice as fast as possible and avoid rigid and/or planned invoicing moments. Anticipate as such waiting longer for your customer’s payments because you only invoice at month end. 
• Ensure enough time between sending your invoice and its expiration date. Take the internal organization of your customer into account.
• Determine clear credit controlling indicators and activities. This will help you in avoiding “gray areas” which could hinder you in acting consequently.
• Organize a streamlined after-sales process because… customers don’t pay as long as they have complaints. 

In our next article, we will point out how optimizing your accounts payable can add to improving your company’s working capital.

Interested?

Do you also wish to improve the working capital in your SME? We are happy to come and visit you. Email us at info@horsum.be or call us on +32 9 378 38 28 for more information.

horsum is a recognized service provider of the KMO-portefeuille.

Dennis Houthoofd – November 15th, 2016