07.08.2022 | Posted by Erik
AR Fundamentals to Protect Your Company During Good and Bad Times
We’re taking a break from our usually scheduled outsource receivables services programming to talk about the elephant in the room.
Inflation rates are higher than they’ve been in 40 years. The current stock market volatility and supply chain issues are predicted to continue. Interest rates are rising at record speeds, and a tech slump is looming.
Despite a booming labor market and increased customer spending, financial experts are sounding the alarm. It seems like talk of a potential recession is everywhere right now.
While things could always turn around, there’s no harm in planning and preparing for the potential recession ahead. As an accounts receivable management firm, we have some advice for the steps you should take to protect your company. The good news is these AR fundamentals will serve your business in both good and bad times.
How to Prepare Your Company’s AR for a Recession
The most important thing you can do right now is to get your business ready. As an accounts receivable management firm, we always hope for the best but prepare for the worst. Here’s how you can do the same.
Have a Discussion: Gather your decision-makers and make a plan. Be proactive about how the company should move forward and navigate potential challenges in the future.
Identify Your At-Risk Customers Now: You likely already know which customers and industries are most at risk during a recession. You also likely have an idea of who your late-paying customers are. This is a terrific time to get their payments up-to-date and make preparations just in case. Take time to review all your customers and their current terms.
Tighten Your Follow-Up Processes: During a recession, cash flow is usually tighter, which means you might have to fight harder to get payment. You want to avoid letting other vendors take priority over you. Take time to tighten your follow-up processes and make sure you have a procedure in place to follow up the second an invoice goes past due. The reality is that when companies fall on hard times, the vendors that call first will get paid first.
Focus on Your Highest-Selling Products: Items that are selling well now will likely continue to be in higher demand. Pour your focus into your highest-selling products to ensure you have them to fall back on. Make sure you have plenty in stock (if applicable). And if your products aren’t selling that well right now, it’s even more of a reason to tighten up your follow-up processes.
Stop Shipping Product to Past-Due Accounts: Late payment leniency might be something you’re relatively comfortable with. However, now is an ideal time to get your books up to date. Consider holding products until your past-due customers get caught up. You can say something like, “We can’t send you new product until you pay your past-due amount.”
Tighten Up Your Invoicing Fundamentals: Refining your invoicing processes will enable you to collect with more ease. There are several things you can and should do to ensure payment is easy and obstacle-free for your customers. Check out our complete list of invoicing dos and don’ts to make sure you’re ready.
Employ Credit Investigation for New Customers: If you aren’t already, make sure that you’re being thorough with credit investigations. Landing new customers can be exciting, but if you fail to adequately investigate their financial competency, you could be setting yourself up for future trouble.
Reduce Your Exposure: The last thing you want is to leave your business open to a risky financial predicament. Take time to reduce your exposure now by requiring that all your customers pay down their past-due balances—and consider requiring pre-payment for customers with a history of slow payments or accounts with shaky credit reports.
Consider Outsource Receivables Services Now To Protect Your Assets
The best thing about the practices we’ve touched on is that they’re helpful in a good economy, too. They just become more critical when things start looking grim.
If you’d like extra help preparing for a potential recession, consider outsource receivables services. Here at Axim, we specialize in accounts receivable management, in good times and bad.