5 Ways Accountants Use QuickBooks to Improve A/R
One major challenge that any new startup, small business or growing business faces is the management of cash flow within their company. Limitations in cash flow can have a number of adverse effects, including delays in services or products provided, the inability to pay employees or vendors on time, and unnecessary incursions of interest on loans that may need to be taken out.
Don’t we all wish that our customers would pay us in a timely manner and obey those payment terms we arbitrarily select when we send out our invoices? In a perfect world, that would be great, but as anybody who owns a business or works in the Accounts Receivables department can attest to, we know that is just not the case. So, what can we do to make this process more efficient and keep the cash rolling in, and how can QuickBooks® help with that? Here are a few ideas on how to reduce the amount of time it takes for your customers to pay you:
I always consider using discounted payment terms as “soft” encouragement. Businesses typically use the standard Net 30, Net 60 or Payment On Receipt terms that are available in most accounting applications. For those of you who don’t know what Net 30 signifies, it indicates that payments are due 30 days from the date the invoice was issued, and can come in any increment of days.
The terms that often are overlooked, which can encourage more expedient payment of invoices, are the ones that offer a discount paid within a certain time frame. These will usually read as 1% 10 Net 30 or 2% 30 Net 60. This means that you will offer a 1% discount on any invoices paid within 10 days, or a 2% discount on invoices paid within 30 days. This offers an incentive for your customers to pay invoices in a timelier manner, in order to take advantage of those discounts. These types of discounts can be built directly within QuickBooks under your payment terms setup, so don’t worry about manually calculating these discounts, as QuickBooks will do that for you automatically.
Now, this is something that does need to be thoroughly analyzed to determine whether your reduction in profit margin outweighs the benefits of receiving those payments more quickly. If your business does operate with a slim profit margin on your services or products, you may want to consider the next option.
So far, we talked about “soft” encouragement; now, let’s discuss “hard’ encouragement. This focuses on the application of finance charges.
Finance charges are applied typically on a monthly basis, or on your typical statement cycle. These are percentage-based charges on customers that have missed their payments. Finance charges can be configured within QuickBooks under Edit>>Preferences>>Finance Charge. This allows you to select the Annual Interest Rate, Minimum Finance Charge Amount, Grace period and form, when the finance charges are assessed. Once those settings are in place, charges can then be assessed to past due customers through the Customer menu, under Assess Finance Charges.
This provides another method of encouraging customers to get their invoices paid on time. There are some items to consider prior to implementing finance charges. First, will this charge alienate certain customers of yours? Second, you should be very clear that your business assesses finance charges on past due invoices. This should be made very clear on the initial invoice issued to the customer. Without notifying them in advance, this is a sure-fire way to upset a customer with surprise charges.
As the world continues to progress digitally, more and more of your customers are feeling comfortable paying invoices online. QuickBooks does offer a solution to that with the Online Payment feature (Edit>>preferences>>Payments).
This feature will allow users to either click on a link, if you are emailing directly to them, or enter the link, if you are sending physical invoices. You can make a payment on the invoice through a protected payment link. It offers options of paying with either a bank account or credit card.
Many businesses, in an attempt to reduce overhead, have started to shift towards making online payments. This can be seen in physical supplies like checks, papers, check printer maintenance and postage, as well as through the labor of physically printing checks, stuffing envelopes and addressing letters.
Giving customers a more streamlined method of making payments not only makes their life easier, but also helps get you paid more quickly.
Now, if you want to start getting some correspondence in front of customers as friendly reminders to submit payments, then you should be taking advantage of the collections letter function within QuickBooks. The old approach used to be pulling up each individual customer and either sending them a personalized letter or giving them a direct phone call (this is not always a bad thing, as certain cases require that human touch for those difficult customers).
Within QuickBooks, you can automate the process of sending correspondence via mail. QuickBooks comes with a set of pre-packaged collections letters, which you can use at your disposal for producing collections letters in one shot. These templates are built in Microsoft Word, and will automatically merge data form your QuickBooks file to produce a more personalized touch.
The collection letters can be accessed in QuickBooks from the Customer Center by clicking the Word drop-down and selecting “Prepare Collections Letter.” From there, simply follow the wizard for producing the letters. The default templates provide formats that are friendly, formal and more aggressive, but you can also create your own template as you see fit.
Using the Reports Available to you
And last, but certainly not least, is utilizing the reports that are readily available to you. The collections process is a critical aspect to any business because it facilitates the receipt of payments. At a minimum, you should be reviewing your current open “Accounts Receivable” on a weekly basis. There are two key reports in being able to analyze this and determine where the hold ups might be occurring:
The first is your AR Aging Summary & Detail report (Reports>>Customers & Receivables). These reports will provide you with a solid overall view of all the far past due invoices that are broken down by customer. This will assist in identifying those troublesome customers that are taking too long to submit payments. You may need to consider some of the options above for these customers, or provide more frequent follow-ups with the collections process.
The second is the Collections Report (Reports>>Customers & Receivables). This report is useful for any person who might be making actual collections phone calls. This provides the user with the customer name, contact and phone number, along with the invoice(s) that are currently past due.
These are just some of the ways to improve your collection process, and get paid timely and accurately. Put them into action today!