What Are Accounts Receivables?

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By Octavia Conner

Money problems in business can happen for a LOT of reasons.

Today’s blog will discuss one of the reasons often left unseen by the untrained eye. As a consultant, what are you not thinking about that is hurting your profitability potential and shrinking your cash flow?

A deadly money mistake that many consulting firms make is not paying close attention to their – Accounts Receivables.

Accounts Receivables is when money is owed to your consulting firm from a client, but you have yet to receive it.>Understanding how accounts receivables affect your profitability and cash flow is key to scaling your firm.

If you’ve ever earned money in your business but wondered why it didn’t flow to your bank account, you could have an accounts receivables problem.Basically, you invoiced a client, but they have yet to pay.Accounts Receivables lead consultants to experience significant cash gaps periods.

Therefore, on your Profit & Loss statement, you probably have a Net Profit, but when you log into your bank account, you feel like, “OMG, where is my money!” This negatively impacts your profits and cash flow because you end up providing your consulting services for free. You are in business to make money, bank, moolah, cheddar, that green stuff, right? Right!

Close the cash gap and eliminate accounts receivables problems forever:

If you have accurate, reliable financial reports, you can locate the amount due in accounts receivables on your Balance Sheet. Eliminating your accounts receivables problems will position your consulting firm to maximize cash flow and profits. You will begin to close the Cash Gap in business. Let me explain the cash gap, and then I will identify five strategies to eliminate account receivables problems forever. 

What is the Cash Gap?

The cash gap is the period between when money has exited the company and payments have entered the company. This period can oftentimes be stressful, and the company can feel strapped for cash. Your goal as the CEO is to close the cash gap to remain cash flow positive always. 

To eliminate accounts receivables problems and close the cash gap, there are a few strategies you must do:

  1. Adjust Payment Terms
    1.  Instead of due in 30 days, change your payment terms to due-upon-receipt or auto-draft or project-based payments. 
  2. Communicate constantly with clients that haven’t paid their invoices
    1. Send email reminders weekly, sometimes daily.
    2. Call or have your accountant call and request payment firmly but professionally.
  3. Confirm Receipt of Invoices & Payment Date
    1. If you must send invoices, always confirm receipt and inquiry about the payment date. 
    2. Follow-up immediately if the invoice is not paid on the due date. 
  4. Improve Timing
    1. The longer it takes to send the invoice, the less likely it will be that your payment will be sent on time or at all.
    2. Send invoices immediately once service begins or right after you complete the project.
  5. Report to Credit Agencies
    1. Report timely and late payments to the credit agencies.
    2. Notify your clients that this is a part of your internal process. 

Accounts Receivable Best Tips:

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