BEST PRACTICES FOR MANAGING YOUR CUSTOMER RECEIVABLES
The best part of being in business is when your customers pay you and on time. The important thing to remember is to make sure that you are managing the receipt of these payments promptly or they will get away from you. Cash management is one of the most important functions of the financial process. The flow of money in and out of your company must be properly documented in order to have a clear precise profile of the company’s revenue stream. Managing receivables, or simply put, billing your customers and collecting the payments, should be handled daily. Although its time consuming, processing your receivables daily is necessary in order to accurately reflect your company’s financial standing.
What are receivables? Basically put, receivables represent the amounts owed to your company for goods sold or services rendered. Time and time again, I have come across businesses that don’t have a system for tracking their receivables. They know that they exist but have no idea of how much or when they are due. What typically happens is that the owner will suddenly become a bill collector when funds become scarce. To prevent this scenario from happening, it’s important to set up and maintain a proper Cash management system. How does one do this? It’s preferred to use an automated or software package to track all your financial data. Generally, when using software, the program will have well defined modules that step you through the entire process. With that said, I firmly believe that it’s just as important to know the basic theory behind what you’re doing. To educate you further, let’s take a look at some of the key components of an effective cash management system.
PROCESSING RECEIPTS
In this phase of the system, customer receipts are delivered in several manners; by check, by credit card, or direct funds transfer into the company’s bank account. Regardless of the method, to maintain internal controls, or to make sure that no one person has complete control over the entire process, this ametask can be designated to a person other than the accountant or bookkeeper. As the items are received, they should be recorded in some sort of log or journal.
DEPOSITING FUNDS
Preparing checks for deposit into the company’s bank account will involve endorsing the back of the check. The company should have a rubber stamp with the words “for deposit only” along with the bank account number, name and location. Once the back of the check is endorsed, a deposit slip should be prepared with the following information: customer name, invoice #, and amount received in payment. This should correspond with the same information that was logged in when received. If payments are received directly into the company bank account, such as credit card purchases or direct funds transfer, still the amount should be compared to what’s expected in the customer file. Once all payments have been deposited into the company bank account, a copy of the deposit slip should be maintained as evidence of receipt and attached to the customers invoice. This process is best handled by someone other than who processed the receipts. Once completed, at this point the information is forwarded to the bookkeeper for posting.
POSTING TRANSACTIONS
The bookkeeper, at this point will apply the information from the deposit directly into the appropriate journals and ledgers for the customer account. It’s important that these entries are recorded accurately, otherwise the integrity of the accounts receivable will be jeopardized.
Although the entire cash management process can be more complex, this is just a brief overview. The point is to get started and get organized.
Partnering for your success!
Jacqueline E. Williams
Financial Strategist
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I discovered your homepage by coincidence.
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