Part-time CFO services | How To Effectively Read And Accounts Receivable Aging Summary

There are a number things that business owners should be seeing on their Accounts Receivable aging summary, and some things that should make them question the information. Part-time CFO services says that business owners should be sceptical of shareholder amounts related party amounts that are in the Accounts Receivable summary. The reason is because since shareholder amounts actually have a place in the shareholder loan account, they should not be showing up in the Accounts Receivable summary. The same thing with any related party amounts. If they need to show up anywhere, an entrepreneur should ensure that they, their bookkeeper their accountant creates an account specifically for those amounts. So that they can avoid showing up on their Accounts Receivable report. That way, all of the appropriate amounts can be in their own account, and avoid cluttering up the Accounts Receivable summary on amounts they will never collect from customers.

Another thing that business owners should be sceptical of is if they see payroll or Canada revenue agency amounts in their Accounts Receivable aging summary. Part-time CFO services says the same reason business owners should be sceptical of shareholder or related party amounts in Accounts Receivable summary are the same reason they should be sceptical of payroll or CRA amounts as well. They should have their own account such as a payroll liability account or payroll expense account. There is no reason that a business owner would have to put a CRA overpayment amount in Accounts Receivable because there are specific accounts for that. By keeping all amounts out of their Accounts Receivable amounts except for specific invoices that are owed to the business by clients.

In order for a business owner to be certain that all of the amounts that are in the Accounts Receivable aging summary our actual cash amounts expected to be received into the business, a business owner needs to ensure that there is no additional amounts added in that do not represent customers that a business money. So anytime a business owner looks at the Accounts Receivable aging summary, they should ask themselves: is this a real amount that I am going to be able to collect from a customer? If the answer is no, they need to make a correction on the summary.

When business owners are more aware of the information that exists on their Accounts Receivable aging summary, not only can they ensure its accuracy, but they can also help ensure that they can use that report confidence to collect money from clients.

Part-time CFO services | How To Effectively Read And Accounts Receivable Aging Summary

50% of all businesses run out of business within the first five years of ownership says part-time CFO services. When polled, 29% of those failed entrepreneurs said that the reason why they failed was because they ran out of cash. One of the reasons why entrepreneurs will run out of cash in their business, is because they cannot or do not effectively collect the money that they are owed by their customers. This might be due to a number of reasons, and one of those reasons is that a business owner may not have confidence in their Accounts Receivable aging summary, either because they do not understand it, or they are not confident in its accuracy. As a result, they do not contact clients that owe them money, which reduces the collectibility of those outstanding amounts. When they are unable to collect the money that they are owed, is their business at risk of running out of money.

One reason why business owners might not be confident in the amounts on their Accounts Receivable aging summary is because they are not sure of how updated the information is. Business owners can easily learn how to ensure that they keep their Accounts Receivable aging summary updated in real time, so that they can have confidence that it is accurate whenever they need to use it. While it might be time consuming for business owners to try to update their accounting software with every single transaction in their business says part-time CFO services, it can be very easy and simple for a business owner to learn how to keep their Accounts Receivable updated so that they can ensure its accuracy. Every time a business owner creates an invoice, they can easily learn how to upload that invoice to their accounting software like QuickBooks. And, as soon as payment is received, that entrepreneur can put that payment into the software just as quickly. By learning how to do this, business owners can be certain that any time they need to refer to their Accounts Receivable aging summary, it is is current and accurate as possible.

One of the reasons why business owners may not be collecting money from their clients as efficiently as possible, is because they do not know how often they should reach out to their clients to collect money. Part-time CFO services says that monthly is an absolute minimum, but actually the best practices is for business owner to make collection calls every time they need to do a bank reconciliation to ensure if they have money available to make financial decisions. How this works, is anytime a business owner needs to make a payment on something whether it is payroll, or something else, they should be doing a bank reconciliation. If they do this, they will end up with an accurate Accounts Receivable aging summary, that they can have confidence in his accurate, and will be a good time to do collection calls. This means, that every two weeks is best practices, since business owners should be running payroll every two weeks in their business.