SHOW & CHAPTER 29: ACCOUNTS RECEIVABLE OR STOP LOANING CUSTOMERS MONEY - WILLIAM EASTMAN

Accounts receivable (AR) is any money your clients owe your business. Accounts receivable management is the system of processes you put in place to track that money. The processes are the same for accounts payable; eliminate paper, map work processes, complete & accurate information, collection process, risk management, factoring partners.

Show Objective


EPISODE 137: Summary
AR or Accounts Receivable is what you are owed for products and services sold but not paid for by the customer. AR is listed on the Balance Statement as a current asset, this includes credit purchases.

The Business Cycle and Financial​ Review
End of Expansion: Stop hiring, reduce inventory, move to only pull production, cleanup your accounts with suppliers (AP), cleanup your accounts with customers (AR), allow AR over 60 days to settle.

At the Peak: Shift your focus to reducing costs from the expansion, large increases in revenue makes you sloppy.

Start of Contraction: Create a strategy to hold your best accounts, gain their help in improving your offer and reduce prices as a reward, factor AR over 45 days.

At Midpoint: Start work on improving current offer or development of new products / services.

End of Contraction: Increase relationships with existing and lost accounts to announce new offer and prepare marketing collateral.

Topics:

• Best Practices for Accounts Receivable
• What Should You Measure?
• Alternative Financing for Late Accounts

EPISODE 138: AR Best Practices
You would think that most business owners would be on top of their AR, but that is simply not true. I can't recall all of the business turnarounds I have worked where this was the first item we had to tackle. The best way to view the topic is anything over 30 days is a loan and unless you are a bank - this is not a business model.

The area of real concern is the impact of the business cycle on AR. If you are in an Expansion or it's just coming to an end, everyone of your customers should be doing well enough financially to pay on time. If they are not, what are the chances they will be able to pay when the contraction starts or you're in a full blown recession?

Topics:

• Value Map the process
• Go electronic - automate billing
• SOP's for all components of the Accounts Receivable process
• Establish/Clarify credit and collection policies - i.e. all revenue recognized same day as payment received, monitor credit limits in sales
• Be Proactive - all invoices reviewed for accuracy, follow-up calls to check on it's accuracy, establish if there are any obstacles to online payment - respectful follow up
• Fit your AR to their AP

EPISODE 139: AR - What Should You Measure?
Waiting until you have collected payment or when its is late - is too long. You need a set of interim measures to ensure that nothing gets to the 30 day deadline without receiving proactive treatment. The only way to keep your AR under 30 days is to act before there is a problem.

The following represents a solid list of early warning signs on where to put your attention.

Topics:

• Days Sales Outstanding (DSO) - aging reports
• Average Days Delinquent (ADD) - your loan portfolio
• Turnover ratio - paid vs open
• Collections Effectiveness Index (CEI) - % you are able to collect
• Revised Invoices - inaccurate invoices that delay payment
• Offer multiple payment methods

​EPISODE 140: Alternative Financing
Factoring is a financial transaction in which a company sells its accounts receivable to a financing company that specializes in buying receivables (called a factor) at a discount. Accounts receivable factoring is also known as invoice factoring or accounts receivable financing. Two types of factoring are Transfer with recourse: the factor can demand money back from the company that transferred receivables if it cannot collect from customers, and Transfer without recourse: the factor takes on all the risk of uncollectable receivables. The company that transferred receivables has no liability for uncollectable receivables. 

Topics:

• Requirements are an examination of your company’s financial statements, your accounts receivables, and your payables aging reports. The factoring company will also ask for information on your customers so that your receivables can be confirmed. One last note - make sure you have a written contract with customer's being factored.

Next Show/Chapter 33: Credit & Risk Management

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