What are Good Receivables?
Good receivables are a vital asset to any business. They are the funds owed to a company for goods or services that have already been provided, and they can be an important source of cash flow for businesses. It’s crucial to understand what makes a good receivable, and how to ensure that your receivables remain in good condition. In this blog post, we will explore the different types of receivables, their characteristics, and best practices for managing them.
What are receivables?
When you’re running a business, it’s important to understand what receivables are and how they can impact your bottom line. Simply put, receivables are money that is owed to you by customers or clients for goods or services that have been delivered.
Receivables can come in many different forms, such as invoices for products sold or services rendered, billings for projects completed, or even payment for rent or lease agreements. No matter what the form, all receivables have one thing in common: at some point, the customer or client will need to make a payment to settle the outstanding balance.
While having receivables can be a good thing (it means you’ve made a sale!), it’s important to keep an eye on your outstanding balances and make sure you are getting paid in a timely manner. Letting receivables languish can hurt your cash flow and negatively impact your business.
If you’re not sure how to manage your receivables or want some tips on best practices, check out our blog post on Accounts Receivable Management.
What are good receivables?
Receivables are classified as current assets on a company’s balance sheet and represent money owed to the company by its customers for goods or services that have been delivered. Good receivables are those that are expected to be paid within the normal operating cycle of the business (usually one year) and bad receivables are those that may not be collectible or will take longer than one year to collect.
Some factors to consider when assessing the quality of receivables include:
– The creditworthiness of the customer: Do they have a good history of paying their bills on time? Are they a high-risk customer?
– The age of the receivable: How long ago was the invoice issued? The older the receivable, the less likely it is to be paid.
– The type of product or service being purchased: Some products or services are more likely to be paid for quickly than others. For example, utility bills are typically paid within 30 days, while invoices for complex engineering services may not be paid for several months.
– The payment terms: Net 30 means that payment is due within 30 days, while net 60 means payment is due within 60 days. Longer payment terms usually indicate that a customer is less likely to pay on time.
How to improve your receivables
There are a few key things you can do to improve your receivables:
1. Streamline your invoicing process
Make sure your invoices are clear and easy to understand, and that they’re sent out in a timely manner. An automated invoicing system can help with this.
2. Offer multiple payment options
Give your customers the flexibility to pay by credit card, ACH, or whatever method is most convenient for them.
3. Send reminders
If a customer is late on a payment, send them a friendly reminder. You can automate this process as well.
4. Offer discounts for early payment
Incentivize your customers to pay their invoices early by offering a discount for doing so. This will help you get paid sooner and improve your cash flow.
The benefits of good receivables
Good receivables are an important part of any business. Here are four benefits of maintaining good receivables:
1. Improved cash flow – When you have good receivables, you can be sure that your customers will pay you on time. This improved cash flow can help you keep your business running smoothly.
2. Reduced bad debt – If you have good receivables, it means that your customers are less likely to default on their payments. This can save you a lot of money in the long run by reducing the amount of bad debt that you have to write off.
3. Better relationships with customers – When you have good receivables, it shows that you value your customers and their business. This can help to build stronger relationships with your customers, which can lead to repeat business and referrals.
4. Increased profits – ultimately, good receivables mean increased profits for your business. When your customers pay on time, it frees up more cash for you to reinvest in your business or give yourself a raise!
Conclusion
In conclusion, good receivables are accounts that show a customer has the means and intent to pay for the goods or services they have received. Having good receivables is important for businesses as it helps ensure that cash flow and revenue remain consistent. To ensure your business’s success you should closely monitor your receivables by collecting payments when due, reconciling discrepancies, and managing bad debt with diligence.