Small Business Australia Owners need to manage their cashflow which includes Collecting Money from Customers & Making Payments to Suppliers can be a major juggling act for the MicroBusiness Owner.
Two important reports to assist in these tasks are the Aged Receivables and Aged Payables Reports. All Accounting software programs can produce these reports, but the accuracy of the reports depends on regular and consistent data entry.
Aged Receivables = A list of amounts owing to you by your Customers
This report indicates amounts that your Customers owe you and whether the amounts are overdue for payment. The figures in this report are inclusive of GST. Most small service businesses issue their invoices with 7 or 14 day terms, so the Customers should pay within that timeframe.
I would strongly advise against setting up 30 day accounts for your Customers as this could mean you do not receive payment up to 60 days for example, an invoice issued on 1st of the month would not be due for payment until 31st of the following month. This is way too long and makes managing your cashflow very difficult!
You should review the Aged Receivables Report each week and send reminders to Customers that are overdue for payment. Reminders can be sent via email and it is a good idea to attach a copy of the outstanding invoice. If the Customer replies indicating that they have already paid your invoice, ask them when they made the payment and by what method. This makes it easier to check your records and find a payment that you may have overlooked.
I have found that is usually a genuine oversite if a Customer is late in paying and once you remind them, they are very quick to make payment. Other Customers actually wait for the follow up call or email before they make payment. So if you never contact them, you may never get paid!! Believe it or, it is up to you to train your Customers!
Aged Payables = A list of amounts that you owe to your Suppliers
This report is the opposite of the Aged Receivables Report. It shows what amounts you owe your Suppliers. The main reason for reviewing this report is to monitor what expenses you have to pay and when. The figures on this report are inclusive of GST.
The Micro business owner should review their aged payables report regularly to monitor what expenses are due to be paid. Most Accounting Software packages allow you to set the Supplier trading terms so that you can quickly see which expenses are due immediately and which can be let to the end of month for payment.
Being prepared in this way is better that not knowing! If the Business Owner is monitoring their expenses a cashflow crisis can be avoided. If you are having a slow month for, but have expenses to pay, try contacting your suppliers and making arrangements to pay by installments.
Alternatively, you could arrange to pay large expenses eg Insurance premiums, in monthly installments to ease the burden on your cashflow.
Monitoring the above reports is an essential step in the management of your MicroBusiness. If you own a MicroBusiness, you can learn to Be Your Own Bookkeeper, just go to the web site in the resource box.