How to Ensure Your Companys Receivables Is Generating Optimum Cash Flow
Outline your cash flow policy., Document your policy in writing for your accounting staff , sales staff, and customer service staff to review., Delegate responsibility for each item to a department head or specific title within your organization...
Step-by-Step Guide
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Step 1: Outline your cash flow policy.
Consider all aspects along the flow process.
From potential client screening to data entry and follow-through of credit applications to the documents that should be included in your credit screening package ( ensure signatures are requested on all documents) to the criteria schedule of credit terms and conditions extended, "new client tracking"
annual current client "check ups"
a strict schedule of the collections process, one courtesy call prior to due date, two calls post-date, two late notices, one final demand and then submission to a third party agency.
Also always ensure there is only one employee with the authorization capability to extend payments arrangements and lift suspension of credit without payment.
If everyone has the authority to make exceptions to your policy, why are you creating it? -
Step 2: Document your policy in writing for your accounting staff
You may ask yourself why would sales or customer service need to review and understand your receivables policy.
When a salesperson is to the point where they are getting ready to close a sale, their heart is beating, their blood pressure is high, they are excited...they are going for the close.
Do you think that a credit application being incomplete is going to stop them from making that sale? Do you think that a customer service rep who has been appeasing a client for 20 minutes into her lunch break is going to continue and try to gather all of the facts regarding the dispute, or are they going to tell the customer they will issue a credit so she can run to the break room and get the latest "watercooler" gossip? Can you walk properly if only one leg moves? Can you pick up something if only two fingers bend for grasp? Everyone involved directly, and indirectly should know what the policy consists of.
From credit applicant screening, to criteria for credit terms and conditions, which documents are in need of signature and once you extend credit, who will be watching the new client for the first year, to ensure habits don't change.
Every single step should be outlined as a directive in writing, and each person within your organization should know their part. , Using individual names if non productive, you don't want to have to change the document each time an employee comes or leaves.
However using a title or department head shows who is responsible for each directive and they will be the ones to hold accountability.
The salesperson should know they can not close that sale until that credit application is approved.
The customer service representative should know she can not offer a credit without all of the facts.
Your collections team should know that after three phone calls, two voice messages, two late notices and a final demand letter two weeks notice, the account is immediately placed into collections before it rolls into the 90 day bucket. (These are just examples of collection schedules).
You have created your policy, you have documented it, and you have delegated the procedures and responsibilities.
Now it is time for execution. , Do not think that simply because you understand the process and procedures within your policy that your employees do as well.
It is not that they are not as intelligent, or you do not know how to write effective policy, just that everyone should understand clearly, so to have as little trial and error proceeding forward.
So, meet, speak, answer questions, explain, reiterate.
Ensure that each department, each manager, each employee knows their responsibility and that of the other departments.
If a client calls and wants to place an order, does the customer service rep know who to contact for a credit application? If a sales person receives a call and their client requests an extension of credit terms, who should they contact? All of this is menial yet crucial! , On a monthly basis, assigned employees should monitor and measure the new clients who have been extended credit and ensure there are no red flag signals beginning to emerge.
If there are, there should be immediate measures taken to prevent loss.
Annually, all clients, new, current and even long term customers should receive a financial "check up". (Not many thought that Boscov's or KB Toys would file for bankruptcy.
One year every salesperson on earth wanted to meet with their VP of purchasing, the next year, they were in the process of dissolution.) Do you think a salesperson today would want to meet with them? Of course not, there is no need, because the company filed for bankruptcy.
So the point is: you never know, but you can secure the amount of loss through regular checkups and research.
Each month, following your newly expedited policy, there should be improvements on your receivables.
Each quarter there should be improvement.
Now when you get to a point that you feel their is no improvement necessary, have others review and offer input.
Revisit your policy and see what tweaks you can add to bring ongoing improvement. -
Step 3: sales staff
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Step 4: and customer service staff to review.
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Step 5: Delegate responsibility for each item to a department head or specific title within your organization.
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Step 6: Execute your policy.
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Step 7: On a monthly basis
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Step 8: you should review your financial reports.
Detailed Guide
Consider all aspects along the flow process.
From potential client screening to data entry and follow-through of credit applications to the documents that should be included in your credit screening package ( ensure signatures are requested on all documents) to the criteria schedule of credit terms and conditions extended, "new client tracking"
annual current client "check ups"
a strict schedule of the collections process, one courtesy call prior to due date, two calls post-date, two late notices, one final demand and then submission to a third party agency.
Also always ensure there is only one employee with the authorization capability to extend payments arrangements and lift suspension of credit without payment.
If everyone has the authority to make exceptions to your policy, why are you creating it?
You may ask yourself why would sales or customer service need to review and understand your receivables policy.
When a salesperson is to the point where they are getting ready to close a sale, their heart is beating, their blood pressure is high, they are excited...they are going for the close.
Do you think that a credit application being incomplete is going to stop them from making that sale? Do you think that a customer service rep who has been appeasing a client for 20 minutes into her lunch break is going to continue and try to gather all of the facts regarding the dispute, or are they going to tell the customer they will issue a credit so she can run to the break room and get the latest "watercooler" gossip? Can you walk properly if only one leg moves? Can you pick up something if only two fingers bend for grasp? Everyone involved directly, and indirectly should know what the policy consists of.
From credit applicant screening, to criteria for credit terms and conditions, which documents are in need of signature and once you extend credit, who will be watching the new client for the first year, to ensure habits don't change.
Every single step should be outlined as a directive in writing, and each person within your organization should know their part. , Using individual names if non productive, you don't want to have to change the document each time an employee comes or leaves.
However using a title or department head shows who is responsible for each directive and they will be the ones to hold accountability.
The salesperson should know they can not close that sale until that credit application is approved.
The customer service representative should know she can not offer a credit without all of the facts.
Your collections team should know that after three phone calls, two voice messages, two late notices and a final demand letter two weeks notice, the account is immediately placed into collections before it rolls into the 90 day bucket. (These are just examples of collection schedules).
You have created your policy, you have documented it, and you have delegated the procedures and responsibilities.
Now it is time for execution. , Do not think that simply because you understand the process and procedures within your policy that your employees do as well.
It is not that they are not as intelligent, or you do not know how to write effective policy, just that everyone should understand clearly, so to have as little trial and error proceeding forward.
So, meet, speak, answer questions, explain, reiterate.
Ensure that each department, each manager, each employee knows their responsibility and that of the other departments.
If a client calls and wants to place an order, does the customer service rep know who to contact for a credit application? If a sales person receives a call and their client requests an extension of credit terms, who should they contact? All of this is menial yet crucial! , On a monthly basis, assigned employees should monitor and measure the new clients who have been extended credit and ensure there are no red flag signals beginning to emerge.
If there are, there should be immediate measures taken to prevent loss.
Annually, all clients, new, current and even long term customers should receive a financial "check up". (Not many thought that Boscov's or KB Toys would file for bankruptcy.
One year every salesperson on earth wanted to meet with their VP of purchasing, the next year, they were in the process of dissolution.) Do you think a salesperson today would want to meet with them? Of course not, there is no need, because the company filed for bankruptcy.
So the point is: you never know, but you can secure the amount of loss through regular checkups and research.
Each month, following your newly expedited policy, there should be improvements on your receivables.
Each quarter there should be improvement.
Now when you get to a point that you feel their is no improvement necessary, have others review and offer input.
Revisit your policy and see what tweaks you can add to bring ongoing improvement.
About the Author
Megan Thomas
A passionate writer with expertise in cooking topics. Loves sharing practical knowledge.
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