Your accounts receivables never sleep and it’s always a great time to review your procedures and make any adjustments necessary. After all, the health of your business depends on it.
And as we approach the last quarter of 2022, it’s a smart idea to take a pause and conduct a thorough review of all your accounts receivable procedures including how you handle late and non-paying customers. The economy is changing rapidly as well as the job market and other external factors that we all need to keep a pulse on as we approach 2023.
You may feel you have a handle on your accounts receivables, but if you take a step back, you may find otherwise.
As we get closer to 2023, here are several important factors you should be aware of that could affect the timeliness of payments to your organization in the near future.
Holiday spending will increase consumer debt
People are going shopping for the holidays. That’s just a fact and it’s coming sooner than you think. Sadly, many consumers will overspend which only results in choosing which bills to prioritize in the new year. This alone should cause your business to do a complete review and button up any procedures. Getting ahead of the game will give you that edge in the coming year when consumer bills pile up.
Interest rates continue to rise
You have no doubt seen the news about rising interest rates. The Fed does this to stem off a recession which experts indicate is coming in the next several months. You may have experienced the rise in interest rates firsthand in your own efforts to secure credit. Many experts agree that there will be more increases in interest rates in the coming year. And depending on the credit arrangements consumers have with various creditors, they could see a rise in monthly payments, including credit cards and mortgages.
Layoffs are starting to occur
The job market in September 2022 continued to be strong however, we are slowly seeing signs of significant corporate layoffs. Larger corporations are already conducting layoffs and experts agree that could continue into 2023. If you do not tighten up your accounts receivable procedures, including collection activity, you will no doubt see a dip in cash flow because many of your customers may be faced with unemployment.
Inflation is causing consumers to make choices
This is another part of our economy that is no secret at all. Everyone has seen increases in prices so we don’t have to tell you how this affects the ability of a household to meet financial obligations. If consumers have to pay more for basic items such as food and gas, they may just decide to put off paying you for your services. Once again the experts agree that inflation will continue for some time so if your organization wants to get ahead of this, it’s another great reason to review the procedures in your accounts receivable program.
What should my business look for?
When you sit down to review your accounts receivables, make sure you involve your bookkeeper and even your accountant in the process.
Some of the things you should be reviewing include the expectations you layout to your customers about how they will pay you and when. In other words, make sure customers know when they are expected to pay.
It’s perfectly acceptable for you to tighten up your due dates. For example, if you’re seeing a trend in late paying customers and you have Net 30 terms, you may want to go Net 15. But always have a due date on your invoice.
You should review how consistent your business is at invoicing on time. Every business is different but invoicing at regular intervals is crucial to improving cash flow. If you are a lawn care company and invoice the day after service, great. If you invoice once a week, that’s fine, but stick to a schedule.
You must review your follow-up procedures for customers that do not pay on time. Create a schedule for following up both with statements and gentle reminders by phone.
And one of the more important aspects to consider in your accounts receivables is making sure debt collections are part of your receivables procedures. Using a debt collection agency should not be an afterthought.
If your business is seeing a trend of late paying customers, you’ll want to know that you have the ability to take the next step in getting your customers current, and many times that requires a third party.
Your business can weather the changing economic conditions and with the right procedures and a reputable third-party debt collection agency by your side, you will minimize the chances of a negative cash flow. Contact our team today!