Addisson Rockwell Recovery- How Can Your Business Manage Accounts Receivable Risk

1. Addisson Rockwell Recovery- How Can Your Business Manage Accounts Receivable Risk ? To reduce your exposure to accounts receivable risk, you should take the following steps: Maintain systems and standards According to Addison Rockwell Recovery, develop a system and standards for managing accounts receivable, including the separation of duties. Analyze the risk of extending credit Conduct some research into the prospect's creditworthiness before taking on a new client to discover whether that new client will default on payments. Keep track of your accounts receivables monthly or quarterly to maintain a clear picture of your risk. Establish an enforceable credit policy Describe your credit terms in detail, including how much credit you are willing to extend and for how long. Before you extend credit to new clients, discuss your credit terms. Lower your customer concentration Concentrate your sales efforts on different business segments or industries to expand your client base.

2. Addisson Rockwell Recovery- How Can Your Business Manage Accounts Receivable Risk ? Invest in trade credit insurance Trade credit insurance is another effective way to manage receivables risk. When business-to-business accounts receivables become unpaid, trade credit insurance pays out a percentage of unpaid debt. What Does Healthy Accounts Receivable Look Like? Here are specific metrics you can use to measure the health of your accounts receivable: Days Sales Outstanding Different industries have different averages for Days Sales Outstanding (DSO), or how quickly money is collected after an invoice is issued. Generally, a beneficial DSO does not outshine your terms by half. Best Possible DSO Best Possible DSO believes only existing accounts receivable, so it displays the lowest number of days funds due are unpaid. The closer the DSO and Best Achievable DSO numbers are, the more beneficial your accounts receivable. Average Days Delinquent While DSO examines the record of your accounts receivable, Average Days Delinquent (ADD) provides you an at-a-glance look at how useful your business is at managing accounts receivable on time. Turnover Ratio Your receivables turnover ratio indicates how nicely you handle the credit you extend to your customers and how efficient you are at collecting fees. The more increased the ratio the better. Collection Effectiveness Index You can know how powerful your accounts receivable management is by estimating the Collection Effectiveness Index (CEI). The closer the CEI is to 100%, the more profitable your outcomes. According to Addison Rockwell Recovery, utilizing these metrics and reviewing your credit collection procedures and practices regularly can help reduce your accounts receivable risk.