What is receivable management? Receivable management refers to the planning and controlling of the debts owed to the customers for selling goods or services on credit. Management of receivables deals with account receivables. It helps a company ensure that customers pay their dues on time before the due date. It also helps to prevent overdue payments and non-payments of customers. Managing receivables is essential for every business owner to control their organization from running out of working capital at any time. In addition, effective management of receivables helps businesses to build their financial and liquidity positions.
What are the objectives of receivable management? The significant goals of the management of receivables are as follows;
- Improve and maintain cash flow
- Reduces losses incurred due to bad debts
- Improve customer satisfaction
- To decide the optimal sales of goods and services
- To control the bad debts, cost of receivables, cost of collections, and other business expenses.
- Boosting sales, etc.
What is the purpose of receivable management? The primary purpose of receivable management is to boost the sales volume and profit of the organization by satisfying customers by providing credit facilities. And so, its purpose is to build effective relationships with customers and clients by providing them goods and services on credit. The management of receivables focuses on getting payments on time from the customers. And that is why receivable management is also known as credit management.
What is the importance of receivable management? Receivables management is one of the essential steps or practices for businesses. It is crucial for companies in many practical ways, which are as follows;
Evaluates customers’ credit rates –
Receivable management evaluates the customers’ borrowing capacity and repayment ability to determine their credit ratings. It helps businesses analyze the customers’ ability before approving goods on credit to identify the right customers for offering credit facilities and reduce credit risk by receiving payments on time.
Reduce investment in receivables –
Receivable management helps businesses to reduce the investment amount in the receivables. It ensures that optimum funds are available every time in the organization, so unnecessary investment is not required. In addition, it helps businesses to identify and decide the credit limit and period to avoid bankruptcy situations in the future.
For optimizing sales –
Receivable management is essential for every business to optimize its sales volume by building effective relationships with customers or clients. In addition, receivable management helps businesses to reach more customers by providing credit facilities.
Minimize the risk of bad debts –
Receivable management also helps businesses to avoid the risks of bad debts. It helps to ensure that the company sends notification alerts to the customers to remind them of their due dates of payments.
Maintain efficient cash –
Maintaining efficient cash is essential for running a successful business in a competitive market. Receivable management helps enterprises record all cash flows to sustain efficient money.
So, these are the significant importance of receivable management for a business. So, if you are a business owner, you should manage your company’s receivables to get all the above benefits.
