What is Accounts Receivable Management, and Who Cares?
Any small business owner that checks his bank account and finds he has less money than he thought he had, cares about accounts receivable management. If you didn’t know what it was before you checked your account, you found out quickly. Accounts Receivable is the money owed to you by customers that didn’t pay you when you delivered whatever it is you deliver.
Accounts Receivable Management is the work you have to do to collect from the customers that didn’t pay when you delivered whatever it is that you deliver.
You may wish you didn’t have to think about accounts receivable, and you may even believe you shouldn’t have to think about it. I’ve listened to countless small business owners fume about what’s ‘supposed to be’. “They should pay on time.” “They shouldn’t have bought it if they couldn’t pay for it.” It sounds good, but it isn’t business reality. Most customers don’t pay on time. In fact, statistically only about 30% pay right on time. Fortunately another 30% pay within a reasonable time frame. Then you have the hopefully no more than 30% to 35% that take a little work to collect from and then the 5% to 10% that take more than a little work.
Remember back when you were in school, and you knew 60% of the answers to the test you were taking, really well. 60% is a lot, that ought to do it. But it doesn’t, that’s reality. And collecting 60% of your money on time or close to on time isn’t good enough either. You’ve got to do the work that will bring the rest of your money in. If you don’t, your bad debt losses will increase, and not necessarily slowly. In an economy like this one, bad debt losses can skyrocket within just a few weeks of inattention.
So, pay attention, and do the work of accounts receivable management. The health and wealth of your business depends on it.