Accounting and bookkeeping is at the heart of every small business, but we often see examples of business owners essentially ‘leaving money on the table’. What does that mean? It means that the absence of an accounts receivable process results in not following up for payment, not issuing proper terms of payment and worst of all, not issuing an invoice at all!
Accounts receivable is any sale that your business has made on credit, meaning the client is not providing immediate payment. As your business grows and sales increase, it can be a big task to keep on top when payments are due, which client has paid and what invoices need to go out. Taking the time to set up an accounts receivable process can alleviate a lot of stress and also ensure that you are receiving all payments you’ve earned. It is worth it to book an appointment with an accounting firm or a bookkeeping service that can help you build an accounts receivable process that will work for your business.
Here are the elements you will need to think about to build your accounts receivable process:
Creating new accounts: Having clients fill out an account application form can reduce the number of clients who cannot pay their invoice (bad debts). This form can also include their acknowledgement of having read your terms and conditions for payment.
Terms and conditions of sale: This outlines your expectation for payment. Is payment due upon receipt of the invoice, due 30 days out, 90 days out? Be clear about how payment can be made. Options such as PayPal or Stripe can facilitate faster receipt of payment as they make it easy for clients to pay quickly. Information on interest rates charged for late payments would also be included in your terms and conditions.
Issuing invoices: Even if you are using a technology system like QuickBooks or FreshBooks, you still need to stay on top of when invoices are issued, making sure that they get sent out and are received. Many companies hire a part time bookkeeper to help manage and keep on top of invoicing.
Accounts receivable reporting: Run reports each month to determine which invoices got paid, which ones are still outstanding and which ones are now overdue.
Following up on debts owed: At some point, you will have a client who does not pay their invoice on time. Determine what your process will be when that happens – when will you make follow up phone calls, how many calls will you make, when will you send out letters of demand, etc.
Not getting paid because of a simple thing like a client’s expired credit card or an invoice never received is the result of a poor accounts receivable process and can be crippling to a small business. Don’t let this happen to you! If you need help with your accounts receivable, contact Simply Bookkeeping to set up a consultation and find out how we can help your Mississauga, Oakville, Milton or Burlington business.