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When an entrepreneur is first looking at their Accounts Receivable aging summary, they should first be reviewing the information for errors. Errors such as a negative number can be easy to spot, and easy to fix. Part-time CFO services says that while a negative number is not impossible, it is very uncommon, therefore it can either be easily explained or easily fixed. Whenever a negative number appears on a are summary, it means that a client has either repaid a deposit, or overpaid an invoice. A business owner will very easily be able to verify that information, and if they have not prepaid, or overpaid, then that means it is an error that needs to be fixed.
Another reason why a business owner may see a negative number on their AR summary, is when it is also accompanied by a positive number by the same amount for the same customer. Part-time CFO services says that this typically indicates that an invoice was paid, and the business owner entered the amount into their accounting software, but then did not apply that payment to a certain invoice. Anytime a business owner sees this, they can very quickly and easily go into their accounting software and fix that mistake.
Business owners should also review their AR report in order to see if they have whole numbers on their summary. Part-time CFO services says that this again does not indicate a mistake absolutely, but because it is extremely uncommon should cause a business owner to investigate. Typically, when an invoice that is around number exists on AR report, it is because an entrepreneur has accidentally invoiced an estimate instead. By being able to fix this easily, can help ensure the accuracy of their report.
Business owners should also take a look at their Accounts Receivable summary to see if it has anything that is not a customer listed. Part-time CFO services says that examples of this would be anything that is marked shareholder, related party, payroll or Canada revenue agency. None of these things should exist on an Accounts Receivable aging summary, because it specifically for customers. Also, because each one of those things has its own part elsewhere in the financial statements, so if an entrepreneur sees in their they can easily be fixed.
When entrepreneurs review their Accounts Receivable aging summary in order to fix errors, they can more comp that we use that information to call clients in order to increas cash flow in their business.
There are many reasons why an entrepreneur should review their Accounts Receivable aging summary says part-time CFO services, and an extremely good reason, is to ensure they are staying on top of the most important invoices to collect on. It is extremely important that entrepreneurs are aware of all of the clients that all the money, and that they are regularly contacting them so that they can increase the cash flow in their business.
The most critical invoices that they should be aware of on their summary, are the ones that are over ninety days past due. Part-time CFO services says that the more time it takes to collect an invoice, and longer it is outstanding, the more difficult it is going to be to collect that amount. Since most invoices do not allow for clients to pay their invoices after ninety days, business owners should consider the client as have broken the contract. And they need to know why. If the client was unhappy with the work, they should have discovered that far earlier than after ninety days because they may have been able to fix the problem for the client. The client might also be running into financial difficulties, and they should not let it go uncollected. By maintaining regular connection with these clients, and perhaps setting a payment plan can help them get some money sooner rather than no money later. Also, business might just decide to not pay, and then think that it is not on amount that the business owner will litigate over. It is extremely important that entrepreneurs stay on top of these past due invoices.
Part-time CFO services recommends that entrepreneurs be contacting anyone that was them money over ninety days to be phoned and emailed every single day. Some business owners are worried about upsetting their client by contacting them daily, rather than upsetting a client that is not paying them, they should see them as a client they do not necessarily want to keep if they are not going to pay them regularly.
Business owners should consider how often they need to contact the rest of their clients, the ones that are not outstanding as long. Part-time CFO services recommends that in addition to sending out a monthly statement, best practices for clients to contact their clients by phone every two weeks. The reason for this, is so that it can coincide with running payroll and dispersing payments. Since they will have already done a bank reconciliation to see if they have enough money to make those payments, if they do not, it is easy to understand why an entrepreneur would want to make a collection call. If they do have enough money, a business owner should still make a collection calls so that they can keep the cycle of sending out payments and therefore bringing in money positive in their business.
When entrepreneurs engage in regular accounts receivable activities, then they can ensure that they are staying cash flow positive in their business which is increasing their chances of succeeding as an entrepreneur.
