Before diving into the specifics of creating an accounts receivable policy, it’s essential to recognize why it matters. Accounts receivable plays a vital role in your real estate business’s financial health, as it represents future income that you’re counting on to cover expenses, invest in new properties, and grow your enterprise. By implementing a strong accounts receivable policy, you can simplify your cash flow management and reduce the likelihood of financial strain caused by late or missed payments.
Key Components of an Effective Policy
1. Set Up a Credit Approval Process
Before extending credit to new clients, implement a credit approval process to assess their creditworthiness. This can include credit checks, references from other businesses, and reviewing the client’s financial statements. By evaluating a client’s ability to pay, you can reduce the risk of non-payment and protect your business from potential losses.
2. Systematic Invoicing Process
Implement a systematic invoicing process to ensure that all bills are sent out promptly and accurately. This may involve using specialized real estate bookkeeping software to generate and track invoices automatically. By maintaining a consistent invoicing schedule, you can help your clients or tenants plan for upcoming payments and reduce the likelihood of late or missed payments.
3. Monitor Accounts Receivable Regularly
Regular monitoring of accounts receivable helps identify overdue accounts and potential issues early. Use an aging report to track outstanding invoices and categorize them by how long they have been overdue. This report can help you prioritize collection efforts and address any overdue accounts before they become a significant problem.
4. Establish a Collection Process
Create a systematic collection process to follow up on overdue accounts. This process can include sending reminder emails or letters, making phone calls, and, if necessary, involving a collection agency. Clearly outline the steps and timeline for each stage of the collection process. Being consistent with follow-ups can encourage timely payments and demonstrate that you take accounts receivable seriously.
5. Offer Payment Plans
Offering a variety of payment options can make it easier for your clients or tenants to settle their accounts receivable promptly. Consider accepting online payments, credit cards, or even setting up automatic recurring payments for long-term lease agreements. The more convenient you make it for people to pay, the more likely they are to do so on time.
6. Enforce Late Fees and Interest
To encourage timely payments, enforce late fees and interest on overdue accounts. Communicate these penalties in your payment terms and include them on your invoices. While enforcing late fees can help improve cash flow, be sure to apply them consistently and fairly to all clients.
7. Review and Adjust Your Policy Regularly
Your accounts receivable policy should be reviewed and adjusted regularly to ensure it remains effective. Monitor key metrics, such as average days sales outstanding (DSO) and the percentage of overdue accounts, to gauge the effectiveness of your policy. Make adjustments as needed to address any issues and improve your accounts receivable management.
Conclusion
For the real estate industry, Meru Accounting specializes in developing efficient accounts receivable rules. We streamline your invoicing, set clear payment terms, and enhance collection processes, ensuring timely payments and optimal cash flow management. Rely on Meru Accounting to boost your financial efficiency and stability.
