Many of us are currently being faced with tough economical times. So how do you protect yourself as a business owner from a down turn in the economy and prevent yourself from being burdened with large Accounts Receivables?
A few years back, I was doing some deep soul searching. I was not happy with my business model. I was not making the money I thought I should be. My Accounts Receivable Aging report was sometimes over $30,000. Here I was providing onsite bookkeeping services and I was finding myself having to wait as much as 45 days from the date of the services to finally get paid. I was billing bi-weekly, but I was still having cash flow issues. My client's payment terms were really putting me in a cash flow crisis. The idea of spending lots of money on credit card fees definitely did not appeal to me, so what was I to do? I was trying to grow my company, but continually felt like I was chasing my clients to get payments in the door. I was tired of this.
I needed to make some big changes in order to fix my cash flow situation and feel more financially secure. I started by changing the terms of my payment policy. A good friend of mine at the time was working for a company called Alliance Payment Technologies. She opened my eyes to something called an Automatic Clearing House. After doing a little research, I realized that this was exactly the solution I was looking for in order to minimize my accounts receivables, without having to go down the dreaded road of accepting credit cards. So what, you ask, is an Automatic Clearing House? In plain English, according to Google, an Automatic Clearing House is a secure, private electronic payment transfer systems that connects all US financial institutions.
Using an Automatic Clearing House helped me to make the changes I needed to stop having large Accounts Receivable balances. So how did they do this exactly? Companies like NetDeposit who specializes in Accounts Receivable Truncation, Direct Deposit, Electronic Check Conversion, Web Check and my favorite Recurring Billing. The Recurring Billing enabled me to have my flat fee monthly recurring projects taken out of my client's bank account automatically on a monthly basis - no invoicing and no waiting. I also changed how we handled our onsite bookkeeping clients by setting a weekly minimum based on an estimated number of hours worked that would be taken out of the client's bank account on a weekly or bi-weekly basis. On top of all of this, I also changed my billing to be monthly in order to reflect adjustment bills from if we had gone over/under the minimums in the month for onsite clients set up as recurring. Even though I had changed my billing to be done on a monthly basis instead of biweekly, with this new automatic payment system in place, my receivables would be minimal.
This turned out to be exactly the solution that I had been looking for to solve all my collection and cash flow problems. It made a dramatic impact on my cash flow situation and minimized my collections almost completely. It enabled me to be able to budget and manage my cash flow issues on a more regular basis. So if you have ever found yourself in the position of feeling strapped for cash while you're waiting on your clients to finally get around to paying you for the services you have rendered, this may be exactly what you're looking for. In this tough economy especially, you may want to consider minimizing your accounts receivables by using an Automatic Clearing House to collect your fees for you.