In a perfect business world, customers who owe you money would send payment immediately. What? That doesn't always happen at your business?
Join the club. In today's real business world, accounts receivable, or A/R, are usually paid at a snail's pace. Hence the need for a receivables aging schedule, which keeps track of who owes the money, when the debt was incurred, and how long the debt has been unpaid.
A small business owner can utilize the receivables aging schedule to collect debts in three simple steps:
- Commit to a consistent A/R process.
- Calculate the collection time periods for the receivables aging schedule.
- Use accounting software or other tools to keep the receivables aging schedule current.
Action Steps
The best contacts and resources to help you get it done
Discover how aging schedules are built
The type of business you operate will determine in part your A/R standards.
I recommend: Check out
Business Owner's Toolkit "Using the Average Collection Period" chart to figure out the most effective receivables aging schedule for your business. Check out
Measuring Average Collection Period for more information.
Adopt a workable receivables aging schedule
Most receivables aging schedules are broken into 30, 60 and 90-plus day increments. If necessary for your cash flow, consider using shorter increments for you A/R.
I recommend: Business Owner's Toolkit has formatting and instructions for an A/R aging schedule.
Stay on top of receivables
Don't delay in making that first call. If a payment was due in 30 days, make your first call on Day 31. The quicker you collect your A/R, the better your cash flow.
I recommend: Take the free
Bank of America (BOA) "Managing Your Cash Flow" course, and then create a
Cash Flow Worksheet. To assess your business, check out
SCORE's Quicken Cash Flow Worksheet.
Let software do the legwork
Many software programs allow the small business owner plug the company's numbers into an existing receivables aging template.
I recommend: JIAN's Procedures Builder has financial solutions (including an A/R aging report).
Tips & Tactics
Helpful advice for making the most of this Guide
- Be consistent: Send account statements to owing customers regularly.
- Offer Incentives: Offer a slight early payment or "cash price" discount to those who pay immediately, as well as including specific late payment fees on payments made past the due date.
- Follow up: The squeaky wheel gets the oil, as the saying goes, and the same is true of collecting funds due. If a customer promises a payment by X date, and you don't receive it, call again.
- Stay Updated: Make sure that you are as diligent in noting a customer's payment as you are noting his debt. Send him a thank-you note when the account is paid.
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