Inefficiencies in your accounts receivable functions can dramatically impact your business.

“If a company is not managing its accounts receivables, it faces a greater risk of not collecting the money on a timely basis or, even worse, not being able to collect on the funds at all,” says Nick Heintzman, staff accountant at Ashton Staffing, Inc.

Managing your accounts receivable can be one of the most time-intensive duties your company faces, but it is also one of the most important functions

“It lays the groundwork for solid financial footing,” he says.

Smart Business spoke with Heintzman about how companies can better manage their AR to ensure fiscal stability.

How much control can a company really have over its AR?

A company has as much control over its accounts receivable as it can devote to it. The accounts receivable process is more than just managing the account once it is established. The process should start before the client ever begins doing business with you. A credit check should be run so you can evaluate the financial history of a prospective client to better protect you from losing money on the back end. If you notice a trend of late payments, you are better prepared to negotiate terms with the client that will help you still be profitable in the event that you are paid late. A credit report will show bankruptcies and liens, which could help you avoid getting tangled up with a client that would be more likely to fail and leave you with pennies on the dollar.

Another important part of evaluating a credit report is to set credit limits for prospective clients. This will help to protect you and also let the client know it will have to keep up with payments in order to maintain the relationship.

What are some of the more common problems companies face regarding AR?

Three problems that seem to be the most common are short-pays, payment beyond terms and companies failing to pay because of economic difficulties. All three can become significant difficulties in a very short time.

If a client is short-paying invoices, you are not capturing your full earning potential on the account. A client paying beyond terms will hinder your cash flow and potentially cause you to have to borrow to keep up with your financial responsibilities. And if you never receive payment from a client, you have not only lost the money associated with providing the goods or service, you also have lost the profit potential associated with the sale.

What technologies exist today that can help improve a company’s AR function?

There are several accounting software packages that make managing your accounts receivable much easier. QuickBooks, for example, creates reports that will break down your accounts receivable, in detail if needed, by preset time intervals. It can quickly show you which accounts are beyond terms, and this will help you focus on delinquent accounts on the days when you don’t have a lot of time to allocate to managing your accounts receivable.

QuickBooks also can apply finance charges to delinquent accounts, which helps to offset the cost associated with payment beyond terms. Many times, applying late fees will cause a client to re-evaluate its payment terms for you because paying late fees often is a burden. If a client knows you are serious about staying on top of its account, it is likely to get back in terms to avoid the extra charges.

Overall, what are the key factors to efficient AR management?

Some key factors are to keep up with it daily, be friendly but forceful, follow up in a timely and consistent manner, and do the research before taking on a client. However, being rude toward a client will not get payment any faster and will most likely cause the client to think twice about doing business with you. By being friendly and personable, you can help establish a relationship with the client, and that can go a long way in ensuring you are paid on time.

How can inefficiencies in the AR function, if ignored, affect a business?

The longer an account goes outstanding, the lower your success rate of collecting on the funds. In both scenarios — collecting the money late or not at all — it is going to restrict your cash flow for expenditures. Most accounts are set up on a net-30 term, whether it is accounts receivable or accounts payable. If you are collecting your money at the 45-day mark, it’s because you are not staying on top of your customers and you will most likely end up paying most of your vendors at 45-plus days, beyond terms. This can create conflict between you and your vendor, straining the relationship or even causing the vendor to require payment up front. Going one step further, if companies report to credit bureaus, your credit rating will drop if you are consistently late on payments. Poor credit ratings lead to higher interest rates for borrowing, which costs the company more money and restricts cash flow even further.

How should a business go about getting its AR functions back on track?

Set aside time every day to focus on it. If you devote some time every day to contacting aging accounts, you will:

  • Stay at the top of their minds, which will hopefully lead to faster payments;

  • Know which accounts you will need to keep a closer eye on by seeing ongoing trends; and

  • Be able to catch delinquent accounts right away before they spiral out of control.

Nick Heintzman is a staff accountant at Ashton Staffing, Inc. Reach him at (678) 359-3783 or nheintzman@ashtonstaffing.com.

Insights Staffing is brought to you by Ashton

Published in Atlanta

Insuring your business against an emergency is a vital and prudent step to take when owning a business. Most businesses have workers’ compensation and insure their buildings, but there are other types of insurance that business owners may want to consider as well. Choosing the right type of insurance for your business can seem like a daunting task; however, when you choose the right insurance, it can protect you and your business from substantial loss. Many businesses are underinsured because of the expense, but in the event of a crisis, insurance policies can help your company weather the storm and reduce financial loss.

Smart Business spoke to Jim Terrell and Donna Mittendorf of Comerica Bank about some of the most common types of insurance that could help safeguard your business.

What is business interruption insurance?

Terrell: Many businesses that close due to a fire or some catastrophic situation never reopen. It’s not because they didn’t insure their building, but rather it’s because the owners relied on their business to provide them with a steady paycheck. Business interruption coverage pays your lost salary as well as your ongoing expenses, including payroll of key employees and the extra expenses to get back into business more quickly. It could be good coverage to have because if the insurance company is slow taking care of the claim, you’re on their payroll.

What is the benefit of accounts receivables insurance?

Mittendorf: Accounts receivables insurance, or credit insurance, protects your business if your clients don’t pay you. This type of insurance can be particularly useful for new, rapidly growing businesses or if you have foreign clients. Accounts receivables insurance protects your company against loss on receivables, including default, bankruptcy or simply slow payment. This insurance can also protect a company that is unable to collect receivables due to loss of underlying records; for example, ones lost in a fire or flood.

What types of companies could benefit from having product liability insurance?

Terrell: Companies that manufacture, wholesale, distribute or retail a product may be liable for its safety. Product liability insurance protects against financial loss as a result of a defect in a product that causes injury or bodily harm. The type of product you sell should be factored into the coverage amount.

What is employment practices liability insurance?

Mittendorf: This insurance covers allegations of discrimination, sexual harassment and wrongful termination. Many businesses, especially small businesses, may forego this type of insurance because they have few employees or they consider themselves fair employers. That may be the case, but that doesn’t mean a scorned employee won’t allege otherwise. These types of allegations are by nature personal affronts to business owners. The advantage of this insurance is that it has a tendency to depersonalize it as much as it can be.

Is there insurance for home-based businesses?

Terrell: Yes, there is, since most homeowners’ insurance policies do not generally cover home-based business losses. Depending on what you need, you can add riders to your homeowners’ policy. Remember that homeowners’ policies only cover certain facets of home-based businesses, so you may need to purchase additional policies to cover other risks, like general and professional liability insurance.

What if my business has vehicles I need to insure?

Mittendorf: If you have a business that needs vehicles, you should consider commercial auto insurance. This type of insurance insures one or multiple vehicles with liability and property damage liability, as well as additional vehicle coverage like comprehensive and collision coverage. If your company has numerous vehicles and drivers, ask your insurance agent if you qualify for a fleet insurance policy.

How often should I review my insurance coverage?

Terrell: Generally speaking, you should assess your insurance on an annual basis. As your business grows, your liabilities grow and you may need additional or different types of insurance. You don’t want to be caught underinsured if something happens. You should discuss changes in your business with your insurance broker so he or she can determine if your current insurance is still meeting your business’s needs.

JIM TERRELL and DONNA MITTENDORF are senior vice presidents for Comerica’s Texas Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas/ Fort Worth, Houston, San Antonio, Kerrville and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.

Published in Dallas
Monday, 02 May 2011 13:03

How to improve your cash flow

When it comes to building a strong business, one of the biggest keys is to make sure you have a strong cash flow, and your accountant is one person who can help you with that.

“When you’re looking for cash flow management, you’re trying to control the things that take up your money, which would be accounts receivable, accounts payable and inventory,” says Carol Scott, vice president of business, industry and government for the American Institute of Certified Public Accountants.

It may seem like a basic business concept, but Donny Woods, president of the National Society of Accountants, says you’d be surprised how many people don’t take business basics seriously.

“A lot of folks spend money, but they don’t pay attention to their financial statements, or they don’t pay any attention to their cash flow analysis they should be getting on a daily basis,” he says. “They just spend money. Unfortunately, then when they get to the accounting, we find that they’re in real trouble.”

To avoid getting your business into a situation like that, start by creating a financial plan.

“Good planning is the best thing you can do for any cash management policy — knowing what your bills are, having a budget, having a forecast and planning things out to know where you are at any point in time is very important,” Scott says.

With your accounts receivable, it’s important to process invoices daily — the sooner you get the invoice in the mail, the quicker it’s in your clients’ hands and the faster you receive your money. Aggressively pursue past-due accounts, and if you don’t have a credit policy or collection policy in place, work with your accountant to create these.

“[The] squeaky wheel gets paid, so having a very aggressive pursuit at past-due accounts is important,” Scott says.

When it comes to your accounts payable, you want to hold on to your money as long as you can. Scott suggests negotiating favorable terms with your vendors.

“If you can negotiate terms like ‘30 days after receipt of goods,’ it’s more advantageous than ‘30 days from shipment day,’” she says. “Looking at what you can negotiate with your vendors is good.”

Another key to good cash flow management is monitoring your inventory levels. She says it’s important to find a balance so you’re in a just-in-time mode.

“You don’t want much of it, because it sits on your shelf and doesn’t earn you money, but you don’t want to have too little of it because you don’t want to lose sales,” Scott says.

When it comes to cash flow, you also have to keep great records.

“A lot of people write checks and give you nothing but the name of the payer or payee and the amount, and they don’t give you any information about that check,” Woods says. He says you can never give your accountant too much information.

“They should be keeping not only a good check register, but they should be keeping receipts, and a lot of clients don’t do that,” Woods says. “Particularly, smaller clients view the check as the ultimate record. That is not the ultimate record. The ultimate record is the receipt. That is the proof. That is the information about what took place in the transaction.”

Beyond just keeping track of your receipts, Woods says you have to makes notes about what those receipts are part of in the bigger picture.

“Those receipts are not self-explanatory,” he says. “If I get a utility receipt, I know what that is, but how about if I get a receipt from someone for supplies? Maybe all it says is supplies or it’s a service of some kind, and it’s not readily identifiable on the receipt what kind of service is.”

He says this is particularly problematic when it comes to companies using consultants, contractors or freelancers. Companies may submit receipts for these services, but he needs far more information, such as is that person incorporated or not? That determines whether or not he issues a 1099 form to them at the end of the year.

“Those are the kinds of things I have to educate the client about so that we can make sure that they comply with all the federal regulations and state regulations,” Woods says.

While creating a better cash flow comes down to a lot of internal practices, Scott says it’s also important to watch external factors and plan for how it could affect you internally.

“You have to do alternative scenario planning,” she says. “What happens if this happens? What happens if that happens? Staying on top of what’s going on in the economy in general is very important because there are unforeseen things that could happen.”

For example, right now energy is very expensive, and that will ultimately affect your cost of goods because your vendors will have higher shipping charges, so staying on top of the economic outlook is crucial. The AICPA provides a quarterly economic outlook survey that can help you with that.

As you look at all these different factors, it’s important to not try to figure it all out on your own. Instead, use your accountant as a resource to help you navigate these waters.

“They should be asking what are the best practices in various companies that their accountants see as far as days in receivable, collectability, inventory management, those types of things — what are best practices that they can follow?” says Don Misheff, Northeast Ohio managing partner for Ernst & Young LLP.

He says it’s not necessarily a daily discussion you should be having, but the experts agree that it’s not a once-a-year conversation either. Depending on the size of your organization, it could range from monthly to quarterly to even semiannually. By having these conversations and seeking out expert help, you can improve your cash flow and, ultimately, your business’s overall strength.

“Cash flow is the lifeblood of any company,” Misheff says. … “Cash flow and cash management — the companies that do it great survive tough times. During a recession, you see the good ones strengthening their balance sheet with cash reserves and managing debt levels.”

How to reach: American Institute of Certified Public Accountants, (888) 777-7077 or www.aicpa.org; Ernst & Young LLP, www.ey.com; National Society of Accountants, (800) 966-6679 or www.nsacct.org

Published in Cincinnati
Monday, 02 May 2011 11:23

How to improve your cash flow

When it comes to building a strong business, one of the biggest keys is to make sure you have a strong cash flow, and your accountant is one person who can help you with that.

“When you’re looking for cash flow management, you’re trying to control the things that take up your money, which would be accounts receivable, accounts payable and inventory,” says Carol Scott, vice president of business, industry and government for the American Institute of Certified Public Accountants.

It may seem like a basic business concept, but Donny Woods, president of the National Society of Accountants, says you’d be surprised how many people don’t take business basics seriously.

“A lot of folks spend money, but they don’t pay attention to their financial statements, or they don’t pay any attention to their cash flow analysis they should be getting on a daily basis,” he says. “They just spend money. Unfortunately, then when they get to the accounting, we find that they’re in real trouble.”

To avoid getting your business into a situation like that, start by creating a financial plan.

“Good planning is the best thing you can do for any cash management policy — knowing what your bills are, having a budget, having a forecast and planning things out to know where you are at any point in time is very important,” Scott says.

With your accounts receivable, it’s important to process invoices daily — the sooner you get the invoice in the mail, the quicker it’s in your clients’ hands and the faster you receive your money. Aggressively pursue past-due accounts, and if you don’t have a credit policy or collection policy in place, work with your accountant to create these.

“[The] squeaky wheel gets paid, so having a very aggressive pursuit at past-due accounts is important,” Scott says.

When it comes to your accounts payable, you want to hold on to your money as long as you can. Scott suggests negotiating favorable terms with your vendors.

“If you can negotiate terms like ‘30 days after receipt of goods,’ it’s more advantageous than ‘30 days from shipment day,’” she says. “Looking at what you can negotiate with your vendors is good.”

Another key to good cash flow management is monitoring your inventory levels. She says it’s important to find a balance so you’re in a just-in-time mode.

“You don’t want much of it, because it sits on your shelf and doesn’t earn you money, but you don’t want to have too little of it because you don’t want to lose sales,” Scott says.

When it comes to cash flow, you also have to keep great records.

“A lot of people write checks and give you nothing but the name of the payer or payee and the amount, and they don’t give you any information about that check,” Woods says. He says you can never give your accountant too much information.

“They should be keeping not only a good check register, but they should be keeping receipts, and a lot of clients don’t do that,” Woods says. “Particularly, smaller clients view the check as the ultimate record. That is not the ultimate record. The ultimate record is the receipt. That is the proof. That is the information about what took place in the transaction.”

Beyond just keeping track of your receipts, Woods says you have to makes notes about what those receipts are part of in the bigger picture.

“Those receipts are not self-explanatory,” he says. “If I get a utility receipt, I know what that is, but how about if I get a receipt from someone for supplies? Maybe all it says is supplies or it’s a service of some kind, and it’s not readily identifiable on the receipt what kind of service is.”

He says this is particularly problematic when it comes to companies using consultants, contractors or freelancers. Companies may submit receipts for these services, but he needs far more information, such as is that person incorporated or not? That determines whether or not he issues a 1099 form to them at the end of the year.

“Those are the kinds of things I have to educate the client about so that we can make sure that they comply with all the federal regulations and state regulations,” Woods says.

While creating a better cash flow comes down to a lot of internal practices, Scott says it’s also important to watch external factors and plan for how it could affect you internally.

“You have to do alternative scenario planning,” she says. “What happens if this happens? What happens if that happens? Staying on top of what’s going on in the economy in general is very important because there are unforeseen things that could happen.”

For example, right now energy is very expensive, and that will ultimately affect your cost of goods because your vendors will have higher shipping charges, so staying on top of the economic outlook is crucial. The AICPA provides a quarterly economic outlook survey that can help you with that.

As you look at all these different factors, it’s important to not try to figure it all out on your own. Instead, use your accountant as a resource to help you navigate these waters.

Ask your accountant about what best practices they see in various companies that they work with as far as days in receivable, collectability, inventory management, and those types of things.

It’s not necessarily a daily discussion you should be having, but the experts agree that it’s not a once-a-year conversation either. Depending on the size of your organization, it could range from monthly to quarterly to even semiannually. By having these conversations and seeking out expert help, you can improve your cash flow and, ultimately, your business’s overall strength.

Cash flow is the lifeblood of any company. The companies that do it great survive tough times. During a recession, good companies strengthen their balance sheet with cash reserves and managing debt levels.

How to reach: American Institute of Certified Public Accountants, (888) 777-7077 or www.aicpa.org; National Society of Accountants, (800) 966-6679 or www.nsacct.org

Published in Akron/Canton