Accounts Receivable

Poor Quality Sales

Not all sales are created equal. Let’s talk about one of the key criteria to determine if a sale is high quality.

Some Background

In the post 3 Reasons Past Due Receivables May be Worthless we established some background on the danger of past due receivables. That focus was on the customer and warning signs of a possible uncollectible receivable we should know about. Now let’s look at how your company may be impacted internally. To do that we can use Read the rest of this entry »

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Current or Long-Term Debt

There are many ways for a company to get into financial difficulties. One that is very common is misuse of debt. In a past blog, the risk of allowing accounts receivable to become overdue was discussed (see 3 Reasons Past Due Receivables May be Worthless). Also, in the blog posting 80/20 Rule for Receivables Management a way to help manage receivables was discussed. Another leading cause of financial distress is the mismanagement of inventory. See 3 Low Cost Sources of Cash – Part 1 for an example of the impact of this.

The problems of excess receivables and inventory are relatively easy to understand. But, the misuse of debt is a little more hidden.

What Kind of Credit Problem?

When people think of credit problems they are normally thinking in terms of Read the rest of this entry »

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QuickBooks is Not an Accountant

Accounting is one of those areas often viewed as a “back of the house” function. Many see is as a necessary evil and just another cost. In an attempt to reduce this cost, many companies think all they have to do is use QuickBooks. Think again! Quite simply, QuickBooks is not an accountant.

Motivation

There are two prime motivators for companies to try to get by just by installing QuickBooks. One, as hinted above, they believe they can reduce costs. Another is that they can Read the rest of this entry »

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How Time Erodes Your Profit

You’ve probably heard that time heals all wounds, but when it comes to the finances of your company the passage of time can inflict serious wounds.

Financing

How is your company financed? Is it internally, a line of credit, long-term loan(s), or some combination of methods? Regardless of how you finance a company, the passage of time can erode your ability to Read the rest of this entry »

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3 Reasons Past Due Receivables May be Worthless

Customers; every business must have them. We are in business to make a profit but we cannot do that without serving customers. But, if you sell on credit you will at some point have a customer who fails to pay on time. It is critical to stay on top of this or a receivable may become a bad debt.

Two things to remember:

  • A bad debt is worse than losing a sale as you not only lose the revenue but also the cost of the product and other resources devoted to making the sale.
  • A sale is not really final until converted to cash.

With these two things in mind, I would like to focus Read the rest of this entry »

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80/20 Rule for Receivables Management

Perhaps you’ve heard of the Pareto Principle that is better known as the 80/20 rule. Simply stated, it says that for many events roughly 80% of the effects come from 20% of the causes.

Some Examples

A school may find that 20% of their students create 80% of their problems, while another 20% achieve 80% of their positive results. It’s true in other organizations. In churches, 80% of the volunteer work often is done by 20% of the membership. Though the actual percentages may vary slightly, it still is fundamentally accurate much of the time, sad as that may be. If you own a business, look carefully to see who is accomplishing the work. Again, you may find that Read the rest of this entry »

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Cash Flow–The Bottom Line

In the 1986 move Jerry Maguire, there is a famous line, “Show me the money.” Actually, when ever I read or hear about how profitable a business is, that line comes back to me.

Cash or Profits?

While there are any number reasons a company may fail, one of the most common is falling short of cash – that is insufficient positive cash flow. In fact, on paper some companies are very profitable yet they still fail. On the other side of this same coin, some companies remain unprofitable for an extended time and still survive because they possessed adequate cash flow. Of course, let’s be realistic here – a company cannot continue forever being unprofitable. But, profit alone is not enough. Read the rest of this entry »

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The Over 90 Days Customer

Every business that sells on credit has had, has, or will have them at some point “Those customers who think your purpose is to bankroll them”. Here I am primarily talking about the customers whose accounts receivable with you are routinely over 90 days. I recognize that in some industries that over 90 days is the norm, but for most businesses, once a customer’s account gets to 90 days, there is a high likelihood that what they owe will become a bad debt. I touched on this in an earlier blog, 3 Low Cost Sources of Cash – Part 2, but here I want to delve into this in more detail. Read the rest of this entry »

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Dave Ramsey’s EntreLeadership Reviewed

“Wear the old coat and buy the new book.” – Austin Phelps

If you have ever listened to Dave Ramsey on the radio or read any of his books, you will understand that the quote above fits nicely with his way of thinking.  For example, in his book EntreLeadership one of the points he makes is that a business does not necessarily need to by new equipment (call equipment the old coat), yet he also emphasizes investing in the education and training of employees (the new book).

In early 2011 I read his book, Financial Peace Revisited. It was insightful and in general I would have to say Read the rest of this entry »

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What is Your Business’s Weakest Link?

Recently I read an article about Jeff Bezos and the dominant and apparently ever expanding  role of Amazon on the web.  This got me to thinking about how the present connects to the past for business.

Weak Links Are Everywhere

First let me clarify, I in no way intend for the title of this article to suggest that I view Amazon as the weakest link for another business.  That said, Amazon is the dominant player in many areas.  Here is a company that started out selling books and has Read the rest of this entry »

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