How to Get Cash Out of Your Business

Today I am sharing an article from Partner, Charles Sonneborn

How to Get Cash WITHOUT Going to the Bank a/k/a Managing Accounts Receivable

Every business needs cash in order to be successful. When times are good, cash (along with many other important metrics) can be forgotten and overlooked. When times are bad, the individual entrepreneur, small business as well as Fortune 100 Companies (yes, even the auto industry) are in critical need of it. The first thought of small and emerging businesses is to rush to their bank and utilize existing lines of credit or request increases. Unfortunately, this is usually the worst time to approach your banker. Many business owners overlook a valuable asset that can generate some very positive cash flow when managed properly. That asset is their ACCOUNTS RECEIVABLE! The management of Accounts Receivable is often neglected until the business is in desperate times. A good A/R program must be instituted when the business first begins to generate Receivables. The components that need to be developed and maintained are:

1. Establish written credit policies and procedures that not only establish your expected days for collection, but detail what actions need to be taken when a customer falls outside these parameters (i.e. Customer goes over credit limit, Customer exceeds payment terms, Customer bounces a check, significant change in Customer’s credit report, etc.).

2. Identify someone in the organization (i.e. Credit Manager) who will be responsible and have accountability for making credit and collection decisions and take subsequent actions for proper and timely notifications to delinquent customers. This person should NOT be someone in the company who also has Sales responsibilities. This would be a conflict of interest.

3. Be sure there is adequate computer software to accurately track the Receivables and print meaningful Aging reports. These reports must be run regularly (typically monthly or even weekly depending on the business cycle). The Credit Manager should note, on the reports, all actions taken for past due accounts. It is also advisable for the Owner or applicable Executive to have regular meetings with the Credit Manager and review the status of open accounts.





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