According to a recent study, one in four small businesses struggle to collect payments (Debt Collection) from clients. In the long run, companies that can’t collect payment from their customers are forced to draw from their cash reserves or seek outside financing to make ends meet.
While collection problems are clearly common place among small businesses, owners don’t have to suffer delinquent accounts in silence. There are steps a firm can take to better manage its accounts receivables and increase overall cash flow.
Receivables also termed as trade credit or debtors are components of current assets. When a firm sells its product in credit, account receivables are created.
- To evaluate the creditworthiness of customers before granting or extending the credit.
- To minimize the cost of investment in receivables.
- To minimize the possible bad debt losses.
- To maintain a tradeoff between costs and benefits associated with credit policy.