Is Accounts Receivable Really an Asset?

Original post shared by Partner, Tom Matthews

Look on any balance sheet and you will see a line item – in the Assets section – for account receivable.  So yes, this is an asset.

But here’s the problem.

A business has assets for the sole purpose of making the business grow and be prosperous.  Accounts receivable, in itself, is not doing anything to help your business grow.  It is not like the building you own so you have someplace to conduct business and it is not a machine in your shop that you use to make the widgets you sell.  Rather, accounts receivable is a byproduct of the sales process.  It needs to be as short lived an asset as possible.

So how do you shorten the life of your A/R?  My answer is convert your receivables to cash as quickly as you can.  Can IS king so you want as much of it as you can get.  As you have a cup of coffee and read through this post, take a second to reflect and make sure you are doing all of these things which will help you improve your cash position:

  • Do you invoice immediately after the work is complete?
  • Is your invoice easy to understand?  Does it include terms, due date and reference a customer PO Number?  Does it have a “pay me know” call to action?
  • Do you email your invoices to exactly the right person?
  • Does your invoice include all the proper ancillary documentation (shipping receipts, signed PO’s etc).
  • Does your A/R person follow up with a reminder on the invoices 3 days prior to when it is due?
  • Do you have a documented series of escalating customer contacts for overdue invoices?

There is a statement underneath the  B2B CFO® logo.  It is Cash.  We help you get it.  The first thing I do when a new client comes to me with cash flow problems is review his A/R system.  Most of the time we are able to improve cash to the point where we may not need a loan.

Here’s your call to action.

  1. Have your A/R person document his invoicing and collecting work process.
  2. Review you’re A/R Ageing.  How much is over 60 day?  90 day?
  3. Make sure all the steps described above are in place.

And this is one of the places I help you get cash.  Next week we will talk about more advanced cash flow solutions.

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