Stop throwing your money away

How To Avoid Cash Flow Problems From Accounts Receivable Accounts

Having a lack of working capital is one of the most devastating problems a business can have, and this can easily happen if you allow too many credit sales with your customers. Credit sales, also called accounts receivables (AR), are a great way to boost the sales of your business, but you may need to take steps to improve the AR turnover rate with these accounts. Here are two tips to help you with this.

Offer shorter terms

While there will always be customers that pay on time, there will also be those that do not. To improve the chances of collecting your money faster, shorten up the terms that you offer. If you currently offer 60 days, cut it in half to 30 days. While this might be hard to do with existing customers, you can start this off with all new credit applications that you approve.

For your existing customers, you may want to send out one or two notices to inform them that you will be changing the terms. To accommodate their needs, you may want to give them a grace period of six months or one year before this change occurs. 

Sell your accounts

Another good way to decrease issues with negative cash flow from AR sales is by getting in the habit of selling your AR accounts. There are businesses that specialize in purchasing AR accounts, and they will buy almost any account you have. These businesses will not purchase the accounts for 100% of their value, though. If they did this, they would not be able to make a profit.

In most cases, they will offer a certain percentage of the total of the accounts you have. If you accept the offer, they will pay you the cash now in exchange for the accounts. Some businesses sell their AR accounts regularly simply so that they do not have to worry about collecting them. When you sell your accounts, you will benefit in several ways:

  1. You will not have to deal with cash flow problems.
  2. You will not have to worry about collection efforts for accounts that do not sell.
  3. You may be able to reduce your payroll because you will have less work to do for the AR accounts.

There are numerous benefits of selling AR accounts, and this process is referred to as factoring. If you would like to learn more about how factoring can benefit your company, contact a business that offers this service today. For more information, contact a professional like those at JD Factors.