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Manage For Profit

Managing a business for profit requires continuous reinvention and a watchful eye for signs of decline.

Congratulations, you survived the roller coaster of the building and growing your business. It’s important to continue with a growth mindset, however, today’s business environment requires constant reinvention to stay competitive. As you enter the Manage for Profit or maturity stage of your business life cycle, cash flow and profitability create a solid foundation. From a track record of annual growth to loyal employees and predictable revenue, this is the time to acquire other businesses, introduce new product lines, or consider selling the company to investors. Here you’ll find articles, guides and tools to help you avoid complacency in your success and stay vigilant for other opportunities or signs of trouble.

Managing accounts receivable

Nikki Roser

By Nikki Roser

Nikki Roser is the President & CEO of First Bank, a community bank serving Southeastern Illinois and Southwestern Indiana. She is a CPA, holds an MBA, is passionate about building relationships with entrepreneurs and business owners, and leverages her experience to share financial and strategic advice. Partnering with clients and watching their business thrive and prosper is her greatest joy.

One of the most important aspects of managing a business is the collection process of money owed. Businesses often prioritize sales and extend credit to customers without properly managing that credit. This can lead to a longer collection cycle, which ties up working capital that could be used elsewhere in the business. Establishing an effective credit system will increase the business cash flow, as well as reduce the risk of loss from the late or non-payers.

The first step in developing an effective credit system is to establish a clear, concise credit approval process. The responsibility for granting credit should be determined. For smaller organizations, this usually rests with the owner. A best practice would be to obtain a background check and credit history for all new clients. It is always best to know some information about the customer before extending credit. In addition to this, a regular review of the credit policy will help identify any changes in risk profiles of your customers. Look for any changes in buying or payment patterns. This may indicate a change in credit worthiness or potentially fraud. If you do not want to allow customers to carry a balance on account with you, you should look at offering other payment options, such as debit or credit card and mobile payments.

If you allow customers to carry a balance, maintaining accurate customer records is key. This will help to make the process more efficient by having current contact information and accurate information for the invoicing process. This will include the correct data such as pricing, volume and terms. Any errors in this information may slow down the collection process. Managing the collection process will be easier if the system is automated. Most accounting systems have the ability to manage receivables and make the process more efficient. Reporting from the accounting system will help to identify risk in the credit process or with certain customers. It is important to monitor the timeliness of the collection process, as a delay in this will tie up working capital that can be used in other areas of the business.

In the instance that a debt goes past due, the collection process will become more labor intense. The best method to collect payment is face to face. However, if a customer has difficulty paying, it may be best to communicate with a written agreement for a payment plan. A collection agency may also be engaged to collect payments, however, that may impact any ongoing client relationship. Of course, legal action is a last resort, but sometimes necessary.

Maintaining a robust accounting system will help to manage the cash in the business more efficiently and avoid unnecessary collection efforts.

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