One of the Best Ways to Make Your Business More Profitable

Law Blog

Business owners often spend a lot of time working out how to streamline their systems, how to make their products or services more valuable and how to slim down their expenses. Yet they often overlook one of the most challenging issues when it comes to overall profitability – their accounts receivable turnover. If this sounds like you, what should you be focusing on?

Concentrating on Your Outstanding Credit

The accounts receivable turnover is another name for the number of days that sales are outstanding in your business. It is a critical metric when it comes to determining just how profitable you could be and how you are running your business in general. What is this calculation?

Essentially, you determine your accounts receivable turnover by dividing the amount that is outstanding by the total amount of sales that you make on credit and multiplying this figure by the number of days in the time period in question. This will tell you how long it is taking for your customers, on average, to pay their bills.

The higher the number in this calculation, the poorer the job that your organisation is doing in managing both its customers and its cash flow. This should be something that you are aiming to improve as much as possible, although remember that if you have a figure that is very low, then this may mean that cash flow is happy, but your credit policies could be a little too strict. This could be inhibiting your growth.

While you should have in place a very robust system to manage any outstanding payments and should be very clear on your terms with everyone you do business with, you will still have to go several steps further.

Key Steps You Should Be Taking

You should always do comprehensive credit checks before you take on a new customer. This will allow you to see what their reputation is like and can then help you make an educated decision as to whether or not to do business with them. Also, be sure that you are clearly gathering the full legal name and the proper contact details for a new customer. This will mean that the invoice is correctly laid out and doesn't contain any loopholes that could delay your payment being received.

If a dispute does arise then this should be escalated to the correct people within your team immediately. This is not a time for procrastination, but definite action. If the dispute involves only part of an invoice, then you should certainly request that the balance is paid while the other is being resolved.

When to Ask for Help

In many cases, it is a good idea to bring in professional debt collectors or solicitors who specialise in this area, but you should be sure that your approach and systems are finely tuned to begin with.


17 November 2016

Doing business with large companies

When you are a small company it can be a little scary to enter into business relationships with much larger companies. Larger companies have a lot more resources to protect themselves if there is a dispute. That's why it's important to have a smart lawyer on your side to help you draft the most watertight agreements possible. This blog has some tips that I have picked up over the years on how to make sure that you are legally protected when dealing with big companies, as well as some tips on how to choose a great business lawyer for your business.