Receivables management refers to the amount of money a business is owed from customers who have paid for their goods on credit. A company needs to effectively manage their receivables to ensure they maintain a healthy cashflow and ability to meet their short-term debts.
Businesses can pursue a multitude of strategies to enhance their receivables management starting with reducing the credit period offered to customers. This will ensure that you will received payment for your credit sales faster providing the customer has the ability to meet the revised period whilst also reducing the financing cost.. Pursuing this strategy must weigh up the potential backlash that may be felt due to a reduction in credit periods. Customer may feel aggrieved and look for alternative suppliers leading to possible loss in sales and market share.
An alternative method that can be implement this to combat customer grievance is to offer an early settlement discount. This method encourages customers to pay earlier by offering a discount is payment is made within in a certain earlier timeframe. Of course, a loss of revenue is guaranteed but this method aims to nullify this loss by recovering further receivables.
The final strategy defined within this section is utilising a debt factoring company to assist in collection of their credit. Two types of services can be offered by these specialist companies. The first being full administration of credit control. This method provides the factoring company with full control over the services such as production of invoices, managing existing receivables, and collection of overdue receivables. The alternative method, known as a finance advance, offers businesses an advance on their receivables, however, a financial charge will be applied. These methods can be utilised if you a company is struggling with their cash cycle and requires external help to ensure debts can be paid.