Knowing how good you manage your accounts receivable is critical in managing the whole company’s financial. It could be meant: how good you pay your bills on one side; and how good you retain the customers and increase sales on the other side. In other words, knowing how good you manage accounts receivable answers how good company’s financial management on supporting its operation.
When coming into managing accounts receivable, bad-debt is a nightmare and slow cash-in is another big problem that all companies try to avoid in all ways.
With that in mind, companies often put most of their focus on preventing such situations and go way too much in speeding the collection of the receivables up; (a) a tightened credit policy; and (b) aggressive collection. Until several loyal customers start leaving the company—because of uncomfortable experience they get as an excess of the new, tightened, credit policy and the aggressive collection approach. An effective management of accounts receivable is a balance between: (a) extending credit to increase your sales; and (b) collecting cash quickly to reduce your need to borrow. So, how do you know if your accounts receivable management is effective or ineffective?
