Your receivables never sleep, and it’s always a good opportunity to assess your practices and make any necessary changes. After all, the health of your company is at stake.
And, as we stepped in 2023, it’s a good time to pause and undertake a complete assessment of all your accounts receivable practices, including how you handle late and nonpaying clients. The economy, as well as the employment market and other external factors, are swiftly changing, and we must all keep an eye on them as we reach the middle of 2023.
You may believe you have a good handle on your receivables, but taking a step back may reveal otherwise to book a debt collection agency.
As we get to the middle of 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.
Reviewing your accounts receivables is crucial for the financial health of your business. Here are several reasons why now is the best time to review your accounts receivables:
- Cash Flow Management: Monitoring your accounts receivables helps you maintain healthy cash flow. Identifying overdue invoices and following up on them promptly ensures that you have the necessary funds to cover operational expenses and invest in growth opportunities.
- Economic Uncertainty: In times of economic uncertainty, such as during a recession or pandemic, it becomes even more critical to review your accounts receivables. You need to ensure that you’re collecting outstanding payments to stabilize your finances.
- Identifying Delinquent Accounts: Regular reviews allow you to identify delinquent accounts early. This early detection enables you to take appropriate actions, such as sending reminders or initiating collections processes, to recover the outstanding amounts.
- Customer Relationships: Maintaining good relationships with your customers is essential. By reviewing accounts receivables, you can spot potential issues and address them before they strain your relationship with clients. Open communication about payment terms can prevent misunderstandings.
- Improving Terms: A review of your accounts receivables may reveal that your current payment terms are not working optimally for your business. You can adjust terms and policies to encourage prompt payments and deter late payments.
- Maximizing Profitability: Timely collections improve your profitability. The longer an invoice remains unpaid, the more it costs your business in terms of lost opportunities and potential write-offs. Reviewing receivables helps you minimize these losses.
- Forecasting Accuracy: Accurate forecasting is vital for business planning. By having an up-to-date picture of your accounts receivables, you can make more precise financial projections and strategic decisions.
Holiday spending will increase consumer debt
People are going on holiday purchasing sprees. That is a fact, and it is approaching faster than you believe. Unfortunately, many customers will overspend, forcing them to choose which payments to prioritize in the new year. This alone should prompt your company to do a thorough evaluation and tighten up any procedures. Getting ahead of the game will provide you with a competitive advantage in the following year as consumer expenses build up.
Interest rates continue to rise
You’ve probably heard of rising interest rates. The Fed does this to avert a recession, which analysts predict will occur within the next few months. You may have witnessed the rise in interest rates personally in your own attempts to obtain credit. Many experts believe that interest rates will rise more in the following year. In addition, depending on the credit arrangements customers have with various creditors, monthly payments, including credit cards and mortgages, could climb.
Layoffs are starting to occur
The job market remained healthy in September 2022, but we are beginning to see signs of big corporate layoffs. Larger firms are already laying off workers, and analysts believe this will continue into 2023. If you do not tighten up your accounts receivable operations, including collection action, you will almost certainly suffer a drop in cash flow because many of your clients may be out of work.
Inflation is causing consumers to make choices
This is yet another aspect of our economy that is not hidden. Everyone has experienced price hikes; therefore, we don’t need to explain to you how this affects a household’s capacity to meet financial responsibilities. If clients have to spend more on basic necessities like food and petrol, they may choose to postpone paying you for your services. Once again, experts agree that inflation will continue for some time, so if your company wants to stay ahead of the curve, now is a good moment to assess the procedures in your accounts receivable program.
What should my business look for?
When reviewing your receivables, be sure you include your bookkeeper and even your accountant in the process
Some of the things you should be considering are the expectations you set for your consumers regarding how and when they will pay you. In other words, make sure customers understand when they must pay.
It is completely appropriate for you to shorten your deadlines. For example, if you’re detecting a pattern in late-paying customers and you’re now on Net 30, you might consider switching to Net 15. However, always include a due date on your invoice.
You should assess how regular your company is at invoicing on time. Every firm is unique, but invoicing on a regular basis is critical to boosting cash flow. If you run a lawn care business and invoice the day after service, that’s fantastic. It’s fine to invoice once a week but
keep to a plan.
You must assess your follow-up practices for late-paying consumers. Make a plan for following up with statements and polite phone reminders.
Making sure debt collections are part of your receivables operations is one of the most critical factors to consider in your accounts receivables. Using a third party debt collection agency should not be a last-minute decision.
If your company is experiencing a tendency of late-paying clients, you’ll want to know that you have the ability to take the next step in bringing your consumers up to date, which often necessitates the involvement of a third party.
Your company can withstand changing economic conditions, and with the correct procedures in place and a trustworthy third-party debt collection service on your side, you can reduce the likelihood of a negative cash flow.
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