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E-Myth – “Why most small businesses don’t work & what to do about it”

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Part-time CFO services | understanding and Accounts Receivable summary

When a business owner does not understand what their Accounts Receivable aging summary means, they will be able to use that statement efficiently to collect money that they are owe says part-time CFO services. It is extremely important that business owners learn how to do this, because they depend on receiving money from their customers in order to meet their own financial obligations like paying staff, and paying their bills. In addition, business owners need money in their business in order to grow. By learning how to read their AR summary, they can use the information to establish a regular collection routine that can help them bring money into their business regularly.

The Accounts Receivable aging summary is a list of all of the customers that owe an entrepreneur money, and how much money they owe. The summary is organized by when the customers were invoiced. The far left column will show the most current invoices, and the far right column will show the most long-standing invoices. This is extremely important for a business owner to know says part-time CFO services, because the longer an invoice is outstanding, the harder it becomes to collect on. Business owners should be aware that in addition to sending out monthly statements, they should be contacting the clients by phone or email regularly. A great goal for business owners to have, is to never let their invoices become past due.

Another reason why business owners may not be making collection calls as often as they should, is because they do not know how often that should be. While sending out a monthly statement is a bare minimum, the best practices for an entrepreneur to get into the habit of doing, is to do collection calls any time they disburse payments. In order for a business owner to do that, they will be running a bank reconciliation, which will tell them if they have enough money available in their business to make that payment. If they do not, it is a good opportunity for business owner to make collection calls to their clients.

Part-time CFO services also recommends that after a bank reconciliation, the business owner discovers that they have enough money in their business to disburse that payments, it is still a good time to make collection calls. Since a business owner will have paid money, they should ensure that they have more money coming in to replace that, so that the next time they have to make a payment, they will have already laid the groundwork to make sure that money is coming in.

By knowing how often business owners should be making collection calls, they can ensure that they are contacting the clients as often as they need, and that they have the money in their business to pay their bills and to pay their staff. By getting into the habit of doing this regularly, business owners can maintain a positive cash flow in their business which can help them avoid running into cash flow problems.

Part-time CFO services | understanding and Accounts Receivable summary

Extremely important activity for entrepreneurs to ensure that they are getting into the habit of doing on a regular basis is collection calls says part-time CFO services. Since half of all Canadian entrepreneurs end up closing their door within five years, when those entrepreneurs were asks why, 29% of them said that they ran out of cash. By establishing a routine early on in their business of making regular calls to their clients about their outstanding invoices, can help entrepreneurs ensure that they never ran out of money because they are owed money by clients.

To help them have the confidence in the accuracy of their Accounts Receivable aging summary, business owners can learn how to review the summary to minimize errors. There are several easy things that business owners can look at to help them verify the accuracy of the information, and fix mistakes. For example, part-time CFO services says that a negative number on an Accounts Receivable summary does not necessarily indicate an error, but is a good time for business owners to check it. The reason is because a negative number on the summary means that a client has either overpaid which is extremely unlikely, or has paid a deposit, while this is more common, it is also very easy for business owner to verify. If a business owner says that they have not received deposit, it is likely an error that needs to be fixed.

What type of air a negative number might indicate, is typically QuickBooks entry air. Part-time CFO services says that whenever a business owner sees a negative number on their Accounts Receivable aging summary, but is not due to client over paying or prepaying, the next thing a business owner should do is look at their QuickBooks files. If someone like a business owner or their bookkeeper entered in the payment into QuickBooks, but did not apply it to an invoice, it can show up on the Accounts Receivable aging summary as a negative number. When they see that, all they need to do is apply the amount to the invoice, and that number will go away.

Business owners should also be ensuring that all of the amounts that are listed in the accounts receivable aging summary, actually relate back to amounts that actual customers owe them, that they expect to be paid on. Due to some entry errors, business owners might see things like shareholder amounts, payroll or CRA amounts listed in their AR summary. If it is not specifically a customer, that is an indication to the business owner that some things have been entered incorrectly. By fixing these mistakes, business owners can ensure that their AR summary only reflects current outstanding invoices.

By learning how to minimize errors on their AR aging summary, business owners can be confident to use those summaries regularly not only to send out statements, but to call their customers to get them to send in payments so that they always have a positive cash flow of money coming into their business.