This topic describes best practices for accounts receivable (AR), such as ensuring credit worthiness, setting credit limits, issuing statements in a timely manner, and enforcing payment terms.
Accounts receivable (AR) exposes your store to financial risk. It can also require a substantial amount of time to properly administer AR. If you decide that offering store purchases on account is necessary to the success of your store, try to follow these AR best practices.
Use an application form to collect relevant information about the company or person who wants to open an account. As part of that form, get the applicant's permission to run a credit check to determine their credit worthiness. Do not open accounts for companies or people with low credit scores or a history of liens, court judgments, or bankruptcies.
Ask to see bank statements and accounting records to determine the applicant's liquidity. Do not open accounts for companies or people who have significant debt.
It the applicant is a company, ask the president or owner of the company to sign a personal guarantee to pay any overdue or unpaid account balances that the company has failed to pay. If you need to pursue repayment by filing a lawsuit, a personal guarantee may not be sufficient on its own to win your case. However, it is a meaningful document in the sense that it demonstrates responsibility for the company's debts and a clear intent to repay. This can be beneficial to your argument.
If you feel the company or person is not credit worthy, you do not have to send them away empty-handed. Instead, consider offering them discounts to make purchasing products or services from your store more affordable and attractive.
You should always set a credit limit if you open an AR account for a company or person. The credit limit needs to be high enough to allow them to make the purchases they require, but it should also reflect how much money your store is prepared to lose if they fail to pay their balance and you have to write off bad debt.
You also have the option of setting a lower credit limit for new AR accounts and then increasing the credit limit after 6 months or a year if the company or person consistently pays the balances on their account in a timely manner.
If you want balances to be paid on time you have to send statements on time. Store Manager does not automatically generate statements on the billing cycle close date. You have to manually close the billing cycle, generate statements, and either mail or email the statements to the AR account holders. This takes time, so make sure you build sufficient time into your schedule to close each billing cycle and send statements.
Always hold AR account holders to their credit limits and payment terms. This can lead to uncomfortable conversations with customers, but it is essential that you get paid for your products and services in a timely manner. Use Store Manager's AR reports to monitor balances on AR accounts and follow up with AR account holders who have unpaid balances that are more than 30 days old. Do not hesitate to temporarily block purchases on an account until the AR account holder pays balances that are 60, 90, or more than 90 days old.
Some AR account holders may offer to pay balances by credit card. The problem with this is that stores are typically charged transaction fees on credit card purchases. By accepting payments by credit card, you are essentially paying money to get paid.
A more economical approach is to only accept payments on account balances by cash or check. If it is absolutely necessary you may also opt to accept debit card payments. Like credit cards, stores are typically charged transaction fees for debit card purchases, but debit card fees are usually much lower than the fees for credit cards. If you really want a customer to pay a balance and the only option available is debit card, you may decide that paying the fees is an acceptable trade off for recovering the balance owing.
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