Do you have long overdue receivables? Have you made any attempt to know the reason?

Broadly there are two types of business enterprises. One, business in organized sector and the other is in ‘unorganized sector’. There is a third category of enterprise called ‘unorganized business in organized sector! (Let’s name it as ‘UOS)! The key managerial personnel of UOS type enterprises take all the decisions including finance, operations, marketing etc by themselves. Other people in these verticals will only assist the key men.   

One of the drawbacks of ‘one person’ driven entities is mismanagement of working capital. The turnover/sales of these companies will always post growth (year on year) but they always have cash flow problems.

One of the major components of working capital is ‘Account receivables (AR) or Debtors’ (the people for whom the goods/services are delivered but they have not paid us). 

Managing debtors / account receivables

1. Sending Sales Invoices – Check whether the sales invoices are dispatched! Sometimes, the customers wouldn’t have received sales invoice, but you would have raised it and accounted in your books. Have a system of checking whether the invoices have reached the client.

2. Confirmation of Balances – Get the confirmation of balances (a ledger extract) from the customers once in a year (or half yearly is still better). In case of any discrepancy (maybe your bill wouldn’t have been received by their accounts department), it has to be addressed on priority

3. Adhoc Payments – Any adhoc (or lump sum) amount received to be adjusted towards the old bills (first in first out principle). Also communicate with the customer to adjust it accordingly, so that there will be uniformity in terms of adjusting the bills

4. Bills are held for want of further information – You have to touch base with the clients/customers. Sometimes, the bills are not processed for want of additional information. It is better to make sure that the invoices are ready to process for payment. Unless you communicate (without any hesitation) with the accounts department (or concerned people) the chances of getting your bills cleared is very less

5. Over billing – If you have raised an invoice for a higher amount than what is agreed upon, the accounts department may hold your payments. (always remember – those who have to pay, won’t respond on their own; you have to ask for the payment without hesitation)

6. Discussed with owner but no approval in writing – It may so happen that you would have discussed about the pricing with the owner of the company. Due to the personal relationship the owner, you would have dispatched the goods/provided the service. The owner would not have communicated your discussions (mostly intentionally) to accounts department. So, don’t hesitate to ask for your money. People usually forget to pay once their work is done. .

7. Short on supply Long on Payment – When they want goods, there don’t mind to cut short the process. The security gate opens the door even at 9 pm, people will be around to receive the goods. But when you seek payment you will get answers such as ‘office closes at 5 pm’ ‘not working on Saturdays’ ‘the authorized signatory is out of town’. This is one of the reasons of long outstanding payments. When you encounter such customers go for– ‘once bitten twice shy’ attitude.

Thought for the day

Commitment is what transforms a promise into reality  

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