MANAGING CASH FLOW FOR SMALL BUSINESSES-Accounts Receivable
|The success of a small business greatly depends on efficient cash flow management.|
When I talk about cash flow here, I am referring to the movement of cash from the collections to the payments and the maintenance of a "safe" cash balance for operation.
So small businessmen should analyze the cash flow of the businessmen. One
does not need to be an accountant to do that. A working knowledge of where
the cash comes from and where the cash goes are all what the businessmen need.
This means understanding the components of business that affect the movements
of cash like:
1. Accounts receivable-
How long does the company collect its receivable? What are the terms of sales?
n/30 days? n/60 days?
The next question is what's the actual collection period? Is it really after
30 days or more than that? Is it really 60 days or it stretches out to 60 or
The next question is why the prolonged collection period?
With this question in mind, another set of questions should be answered.
1. Does the business send the invoice promptly?
There are businesses where invoice or statement is sent only upon the delivery
of services. But as to how long it is done depends on the person in charge of the billing.
Sometimes, the billing is delayed due to incomplete data or miscommunication
between people in the organization.
The problem could lie on the inefficient record keeping of the business.When
the billing comes, the person in charge of this function has no basis for
2. Do the business make follow up of the collection?
It is not enough to send the statement or the bill. The business has to
make sure that it was received and a payment is being prepared.
3. Does the business continue to render service to delinquent clients/
If it does, it's time to review the accounts of this client.
More about accounts receivables in the next blogs.
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