Stay Ahead of the Downturn with Sound Financial Basics

Next to cash, perhaps the easiest and most convenient option is to allow customers to use a variety of charge and credit cards. It's difficult to beat them when it comes to maintaining healthy accounts receivable. Unlike checks, you won't run the risk of a customer's overdrawn account, or have to wait for a check to arrive in the mail. For general contractors who are being paid directly by the customer, accepting credit cards sidesteps delays that occur when customers have problems sticking to the draw schedule because of issues with bank. And for subcontractors, credit cards make it easier to receive payments on time-even when the general contractor is experiencing delays in payment. Furthermore, individuals and companies often like to pay with credit cards because it may allow them to earn rewards points or accrue other benefits the card may offer.

Overhaul collections
To keep cash flow moving, it's critical to stay on top of collections well before payments are overdue. And even when payments are coming in on time, look for ways to improve your overall collections process by understanding your customers' billing preferences and procedures. Most small businesses can improve collections simply by attending to the basics. Take steps to keep all customer information up to date. By maintaining current telephone numbers and address information, you'll speed collections work and reach customers promptly. When dealing with businesses, be certain your invoice contains all appropriate information, such as your customer's purchase order number or your vendor number, and be sure to send the invoice to the appropriate contact. Wrong contact information or missing invoice information will only add more time to the collection cycle-and that's what whittles away at cash reserves.

Outsource accounts receivable
Bad credit can be contagious, so it's important to take steps to prevent bad customers from affecting your good credit. Protect yourself from late-payers or non-payers by putting a reputable intermediary in the middle. Hire or assign a reliable bookkeeper or accountant on a contract basis to handle accounts receivable functions. His or her job will be to approve credit, make collection calls, receive payments and make deposits. By taking this active step towards strong accounts receivable, you'll take a major step towards stronger cash flow. According to the recent Small Business Monitor, a more aggressive approach to collecting accounts receivable is the number-one tactic small business owners are likely to employ to improve cash flow.

Maintaining the delicate balance between accounts payable and receivable isn't necessarily easy, but with concerted effort and some common sense strategies, you can build a more solid financial foundation for your business. And with more cash on hand and greater peace of mind, you can focus on new and inventive ways to take on whatever the economy may bring.

David Shapiro is vice president for American Express OPEN, the nation's leading issuer of payment products for small business owners.