Any company's accounts receivables (A/R) are its lifeblood. Without it, businesses would find it difficult to cover their costs and ultimately fail. But what happens when things go wrong? For small businesses, this becomes one of the major bookkeeping problems due to a range of factors, such as client refunds or chargebacks.

This article will cover how to manage problematic accounts receivable to keep your business from going under. We'll also provide some guidance on how to avoid a situation like this from ever happening in the first place.

 

 

 

Accounts receivable is the total amount of money that your customers owe you for the goods or services you have provided. Bills, invoices, and any money owing to you can be included in this. It is an essential part of your business because it can increase your understanding of your cash flow and help with more effective money management.

 

It's essential to keep a careful eye on your accounts receivable and make payments on time if you have a lot of them. If not, your financial situation can become precarious. The management of accounts receivable can be accomplished in a number of ways, including the implementation of an effective A/R system and the outsourcing of small-business bookkeeping services. Whatever strategy you use, make sure to keep track of payments and keep things organized to avoid any negative consequences.

 

 

Negative A/R can result from a number of different situations. The most frequent causes are late payments, returned checks, and unauthorized deductions.

 

• Late Payments: 

If your customers routinely pay their invoices beyond the due date, your accounts receivable may suffer. For making late payments, you can have to pay extra money in the form of interest charges or NSF fines. They could also affect cash flow and make it difficult to manage your company's finances.

 

• Checks Returned: 

A negative account receivable is created whenever a customer's cheque is returned due to insufficient funds (NSF). This can happen if the check is falsified or if the customer's account does not have enough money in it to cover the cheque. Returning checks could increase your expenses and damage your rapport with the client.

 

• Unauthorized Deductions: 

On occasion, customers may deduct from their purchase unapproved costs like sales tax or delivery fees. As a result, your A/R may have a negative balance. Unauthorized deductions may also result in additional fees, therefore it's critical to keep meticulous records of them.

 

A Negative Receivables Balance's Effects

 

One of the most important parts of a company's financial statement is its accounts receivable. This account represents the money owed to a firm by its customers for goods or services provided. It is essential to keep these accounts in good standing because it is considered as current asset on a company's balance sheet.

 

Unfortunately, there are times when things can go wrong. There are a variety of reasons why this could happen, but it usually indicates that customers aren't paying their payments on time. If A/R becomes negative, a company's financial viability may suffer greatly.

 

It can, first and foremost, result in problems with the company's cash flow. This is done to prevent the company from using the money owed to it in any other way. For instance, a company might experience financial issues if it relied on the funds to cover salaries or other obligations.

 

The company's profitability is another factor. This is because it demonstrates that the company has received less money from its customers than it was originally owed.

 

Negative accounts receivable may also be a red flag to creditors and investors since it may indicate a company's financial instability or bad internal management.

 

How to Manage Negative Receivables

 

A business has many options for handling poor accounts receivable. A few possible tactics are as follows:

 

 1. To identify the particular causes of the negative balance and to take the necessary corrective action, examine the A/R records. For instance, if the negative balance is the consequence of a customer return, the company can alter its records to reflect the correct amount due by the client. 

 

 2. Create a system for handling and tracking customer payments, such as by sending invoices and reminders for payments on a regular basis. This can assist clients to stay current on their payments and reduce the possibility of negative A/R.

 

 3. You might wish to implement a credit policy if customers commonly utilize credit to pay for goods or services. This can entail setting credit limits and asking customers for deposits or collateral before extending credit. This may help to lessen the risk of bad debt and uncollectible accounts receivable.

 

 4. Establish a system for keeping track of and chasing unpaid accounts. This may mean getting in touch with clients who are behind on their payments and establishing payment plans or other arrangements to ensure that the business receives the money it is due.

 

 5. Use the allowance for doubtful accounts to erase uncollectible debts and reduce the negative balance in the A/R account. This can help the business improve its financial statements and fix problems with its cash flow forecasts.

 

Overall, preventing negative balances from developing and responding quickly and effectively to any existing negative balances are both necessary for reducing negative A/R.

 

Conclusion

 

Managing problematic accounts receivable involves a few key factors that must be taken into account. First, keep complete records of every payment you make and receive. Follow up with customers who frequently owe money to stay on top of collections. Finally, be ready to work with customers to create a payment schedule that works for everyone. Paying attention to these recommendations will help you decrease the impact that poor A/R will have on your business.

 

For companies wishing to manage their accounts receivable, IBN Tech's ability to provide small businesses with accounting and bookkeeping services is essential. Our services can help your business continue to be very productive while accomplishing its objectives. To learn more about how our services could benefit your business, get in touch with us right away.