The Accounts Receivable Cycle Is Too Long

One of the first things I do when I start working with clients is try to understand their accounts receivable cycle.

What is the cycle?

This cycle is the time from when the invoice is sent to the customer/client to when the money is received. More often than not, the cycle can be two to three times longer than it should be.

It’s critical to the success of cash flow, and your business, to shorten the cycle to as small as possible. No one will pay you if they know they can wait forever.

How do I fix this?

Setup automatic reminders in your accounting system for day of, 5 days, one week, and two weeks.

If that fails, consider implementing a discount or interest charges based on the length of time. If they pay within a certain period, would you give them a discount? Or, if they are paying late, would you charge interest fees?

How do I reflect this in my financial planning?

Finally, make sure you update your budgets to reflect when the cash is actually coming in. Your budget should always reflect when cash exchanges hands.

If you need help with budgeting, you can buy a template here or set up a consultation call here.