5 Steps to Improve Cash Flow with A/R

Cash is king. It’s the lifeblood of all successful small businesses. Yet how many small business owners (and even, dare I say, bookkeepers and accountants) neglect Accounts Receivable (A/R) and have no system in place to maximize cash flow?

Back to Basics with A/R

Going back to the basic bookkeeping function, tracking A/R helps the business owner stay on top of which clients owe money, for how long, and how much. Most are doing a happy dance when sales are made, and feel as though the money is practically in the bank. Of course, we know better (and they do too, once the initial sales high wears off).

Because A/R represents an asset – something of value to the company – it should be carefully watched and cared for. That means, ideally, the business owner should collect on his bills as quickly as possible so the money can be moved into the bank account and not tied up in a line on the Balance Sheet.

Sadly, many business owners and their bookkeepers don’t pay much attention to tending the A/R numbers… that is, until there’s a scary cash flow shortage. One of the most valuable services a bookkeeper can provide small business clients is to regularly review the state of the A/R aging, that is, how much money owed is either coming due soon or already past due.

As someone who has specialized in A/R services for over 20 years, I can tell you that the longer clients owe money, the less likely it will ever be collected. This is especially true when selling services instead of tangible products.

A Win-Win Service Every Bookkeeper Should Offer

If you are a bookkeeper (or accountant) looking to differentiate yourself, want your existing clients to love you, and attract more referrals, then provide a high-value service that makes that easy! That’s right, help your clients maximize the cash they can deposit in their bank account and you’ll reap the rewards too.

One easy way to do that is to conduct an A/R Health Check service at least quarterly (monthly is better) where you can help your clients stay on top of the cash that should be coming their way. How to do it? Easy! Follow these 5 simple steps:

  1. Run an Accounts Receivable Aging Report and identify all the clients that owe money
  2. Identify each past due invoice and bring them to your client’s attention
  3. Work together to resolve any questions or known issues accounting for the unpaid status
  4. Prepare and send out account statements, including copies of outstanding invoices (optionally including a friendly, personalized form cover letter requesting payment or direct communication to clear up any unresolved matters)
  5. Set up a regular monthly system to send out account statements and past due follow-up notices to keep A/R current going forward
    Providing this simple service to your clients can have an almost immediate impact on their cash flow, and your value to the business will skyrocket.

Improved Cash Flow for Your Clients AND Yourself

Bookkeepers and accountants have the unique opportunity to truly help small businesses prosper by providing valuable, yet simple systems that maximize cash flow. Keeping up with A/R is one of them. Don’t blindly provide accurate monthly reports alone. Make the effort to review them with your clients, and show them how to use the numbers to increase cash flow – the lifeblood of operations. Become their trusted advisor and recommend ways they can further streamline internal systems.

Providing cash-flow focused services can be offered as a standalone service, or built into your premium service packages. But proactively stepping up to advise clients on how to increase your own bottom line is an incredibly valuable service, and your clients will thank you… and pay you for it.

By the way, systems for improving cash flow are another great reason to love FreshBooks. It makes it easy for small business owners and their staff to capture billable time and quickly prep and send invoices. But FreshBooks also has built-in features to handle some of the A/R management automatically! Did you know you can set it up to send out past due reminders via emails?

Personally, I’ve been using FreshBooks in my own practice because of the simple A/R systems built right into the software, and my clients love it as well. Take some time to explore all the cash flow friendly features in FreshBooks, then help your clients use them too.

The winning combination for increased cash flow for everyone involved is consistent bookkeeping systems, cash-flow-friendly advice and awesome software. Put them all together and you’ll rule the kingdom of cash flow for small business – yours and your clients.

about the author

Freelance Contributor Gabrielle Fontaine, PB, ASBC is a freelance bookkeeper, online trainer and consultant who works with Internet savvy business owners and bookkeeping professionals to maximize cash flow and build true win-win relationships. She is also author of the popular blog, TheFreelanceBookkeeper.