If an entrepreneur is in the type of business that sells a product or service, and then the client pays later, Edmonton bookkeeping says that this business needs to learn how to read and Accounts Receivable aging summary. The reason why is because this report can help entrepreneurs learn how to be proactive in collecting money from their clients efficiently and effectively so that they can have a positive cash flow in their business not only to meet their own financial obligations but so that they can have money when they need it to grow their business.
Accounts receivable refers to the amounts of money that entrepreneurs are owned by their customers. The Account Receivable aging summary is a report that shows an entrepreneur all of the customers that over the money, but is organized by date. Edmonton bookkeeping says that the reason why it is important that it is organized by date so that an entrepreneur can keep track of how long customer has owed money so that they can be very proactive in collecting that money from that customer.
It is extremely important that business owners are establishing payment terms very early on in the relationship with their customer, by telling them what the terms are, as well as printing them on the invoices so that a customer is aware of what the payment terms are, so they know what the expectations will be. Edmonton bookkeeping says that most terms are thirty days, depending on the business and the industry it is in, it may be anywhere with thirty, forty-five or sixty days to pay. Entrepreneurs should keep in mind however that the shorter the payment terms, the faster they will be able to bring money into their business. A recommendation is for business owners to have as short payment terms as possible.
It is also very important that business owners are establishing a protocol in their business before they generate their first invoice, on how they are going to contact clients that over the money. Edmonton bookkeeping recommends monthly email statements, accompanied by regular phone calls to clients that owe money, increasing the frequency for clients that have past due invoices. It is also a great routine to get into, to make collection calls at the same time that a business is disbursing payment. The reason is that an entrepreneur will be doing a bank reconciliation to ensure they have the money to make those payments, and if they do not, it is a great time to call clients to pay outstanding invoices so they can meet their financial obligations. However, if they do have the money in their business to disburse that payment, still doing collection calls to their clients that have outstanding and past due invoices can help an entrepreneur be proactive in bringing in more money to replace the money that they have just spent.
By using their Accounts Receivable aging summary as a tool to help collect money from clients, this can allow the business owner to stay cash flow positive in their business, which can help them meet their financial obligations as well as grow their business.
Edmonton Bookkeeping | Reviewing Accounts Receivable Summaries
When a business owner learns how to efficiently read their Accounts Receivable aging summary, and ten bookkeeping says that it can become a very powerful tool that can help business owners not only collect money that they are owed from their clients but actually use the report as a tool to help them be proactive in their business, earning when they need to work on generating more sales for their business and being able to understand when their marketing efforts are paying off.
In order to understand how to use their Accounts Receivable aging summary this way, business owners should learn how it is organized. The Accounts Receivable aging summary is going to show them a list of all of the customers that owe money to the business, along with the amount of money that they owe, organized by the date of their invoice. Edmonton bookkeeping says that business owners also should understand that at the bottom of the invoice, it is going to have a grand total of all of the money that they are owed by all of their customers.
In order to be able to look at that grand total and use it in their business, entrepreneurs also need to be sure that there are no errors on their Accounts Receivable aging summary. This means that any uncollectible receivables that an entrepreneur has should be reclassified as a bad debt, so it does not show up on the Accounts Receivable report, as well as an entrepreneur being proactive in ensuring that all of the information is customer-related only. They can be instances of shareholder, payroll or CRA amounts making it onto the Accounts Receivable aging summary, and if an entrepreneur can ensure that they remove those, can help the Accounts Receivable summary be accurate, as well as the rest of their financial statements
Once an entrepreneur has verified the accuracy of their AR aging summary, then they can look at the grand total and see if it is low, they could be facing cash flow problem and it is an indication that they need to generate more sales in their business says Edmonton bookkeeping. If it is very high, if the invoice dates are old, that means an entrepreneur needs to increase their collection calls to get their clients to pay more efficiently. If the invoices are new however, business owners should understand that that generally means that they have recently had an influx of customers buying their product or service. A business owner can often take that to mean that their marketing efforts are paying off, and they should continue to use those methods or even increase them to grow their business even larger.
By understanding not only how to read their Accounts Receivable aging summary, but how to keep accurate can help an entrepreneur use the information to understand what is going on financially in their business if they need to generate more sales, increase their collection calls, or what they can do their business to grow even larger can be significant in helping a business succeed.