Wednesday, February 12, 2014

A Simple Fix for an Inefficient Accounts Receivable System

Proper accounts receivable techniques can make a huge difference in the overall financial success of a business or organization.  Leaving outstanding credit to linger longer than necessary can limit cashflow and have accounts thinking they can take their time when it comes to paying off their debt.

Sometimes it’s not the account’s fault though that they aren’t paying on a timely basis; sometimes it’s the creditor’s fault.  As someone who came into an inefficiently utilized accounts receivable system when I took over my finance job in the hotel business, I know just how bad a poorly handled system can hurt collection efforts.

Inefficient use of an AR system
I walked in to an accounts receivable situation in which there was about $500,000 in outstanding receivables.  More than half this outstanding credit was over 60 days.  Suffice to say, I had a lot of work to do.  Worse yet, I found that the AR system wasn’t being properly utilized and was very inefficient…or at least was being used inefficiently.

The simplest of things – assigning invoice numbers – was missing from the system structure, and was creating confusion on all fronts.

Confusion can hamper both sides
Without invoice numbers, we were up a creek without a paddle.  I’d get payments with no reference as to which portion of a bill the payments were to be applied to, and customers would get bills with no invoice number with which to reference their payment or to note what they’d already paid.  Needless to say, it was a mess for both sides.

Something needed to be done and be done quickly.  Payments were being misapplied.  Customers weren’t paying due to confusion or thinking they had already paid.  And the outstanding items on the “Over 90 days” section of our AR sheet was growing rapidly.

Developing a simpler working system
A successful accounts receivable system doesn’t necessarily have to be complex to be efficient and effective.  To maximize efficiency, staying on top of collections can be most helpful.  My system involved a multi-step process:

·         Sending bills (complete with invoice numbers) to customers within 3 business days of when these bills were finalized.
·         Creating a file with invoices, statements, and contact forms (a record of phone calls and emails with dates, times, and company contacts) for each customer.
·         Making a follow-up call within one week after sending an invoice to ensure it was received by the customer, which also helped with relationship building with regular customers.
·         Following up regularly after that first week if payment was not received to find out when payments were planned or if there were any payment issues or billing questions.
·         Maintaining all records after payment was received for future billing reference.

In a little over a year, I’d gotten our AR total down to about $30,000, the lowest it’d ever been, and our “Over 90 days” total was virtually non-existent.  And in the process, I’d made my job easier and made our billing systems easier to understand and more consistent for our customers.



Disclaimer:

The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Saturday, February 8, 2014

2013 Indy Lights Freedom 100 Finish


Couldn't help but post this.  The off-season racing withdrawal is obviously getting too me.  Plus, you just don't see racing like this too often!  Great stuff!

Wednesday, February 5, 2014

Spending Money for the Right Reasons

Spending money is something that many people like to do.  I’m not one of them.  Therefore, when I have to spend money, I do so for the right reasons.  You might be wondering how there are “right” and “wrong” reasons for spending money.  Well, there are.  And our family has learned that knowing right from wrong when it comes to spending our hard-earned money can add up to big savings and increased financial stability.

We use a coupon to save; we don’t spend to use a coupon
A close relative of ours often uses coupons to justify spending.  Whether it’s on food, clothes, or sundries, a coupon is an excuse to spend in this person’s mind.

This is what retailers expect; that’s why there are so many coupons out there.  But this sort of attitude can be dangerous to personal finances, and it’s exactly why we only use coupons when they are for products or services we already purchase and are one of the best values for our dollar.

For example, when we go out to eat, we already know the spots that give us the best bang for our buck.  However, if we can pair such a locale with a coupon when we’re planning to go, all the better; but we won’t go just because we have the coupon.  This keeps our monthly dining budget close to $50, where as according to Bundle.com, “The average monthly cost of Dining Out for people in the U.S. is $281”, and the median monthly expense is $135.”

We get rewards to use our credit card; we don’t use our credit card to get rewards
I see commercials for credit cards with people vying to purchase products with their cards so that they can get the rewards.  While rewards for card usage can certainly be a perk, it’s not why we would utilize a credit card.  Rather, we look at rewards as a benefit that comes with the convenience -- and at times safety -- of credit card use, not as a reason to use a credit card. 

Maybe this is why according to CreditCards.com -- and based off the TransUnion analysis of May 2013 credit files -- the average credit card debt per U.S. adult, excluding zero-balance cards and store cards is at $4,878, while our family’s credit card debt is at zero.

We buy used to save; we don’t save to buy used
We don’t have to buy used; we prefer to.  It’s not that we’ve spent all our money and are forced to save just to buy used, but if we have the option to buy something used, (but still in good condition) for pennies on the dollar of what we’d purchase it for in a retail setting, in most instances we will.

This helps us keep things like our clothing budget between $300 and $400 annually for our family of four (most being spent on shoes and undergarments), and buy things like books, video games, movies, toys, and even certain home furnishings for just pennies on the dollar compared to their retail counterparts.

I go on vacation to work; I don’t work to go on vacation
I know it might sound weird, but I get some of my best work done on vacation.  Having the motivation of getting out to the beach or pool to enjoy time with the kids often pushes me not only to be productive, but puts me in a better mood which seems to heighten my work output and quality.

Some people save all year to go on vacation for a week, maybe two weeks if they’re really lucky.  That used to be me.  I’d kill myself all year for a chance at a week of enjoyment.  And while I made better money back then, frankly, my life was pretty crummy.  Therefore, I made the move to self-employment.  Now I don’t have to work just for that one week, but instead enjoy my life and my work so that I don’t mind taking my work on vacation with me and I continue to earn even while enjoying time with the family.



Disclaimer:

The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.