Tips on Managing Accounts Receivable for a Small to Mid-Sized Business

Small Businesses have a lot on their plates. Harrisburg Attorney Mike Hynum of Hynum Law gives some tips on managing accounts for these firms.

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Hi, this is Mike Hynum from Hynum Law in Harrisburg, Pennsylvania, and today I'd like to talk to you a little bit about managing your accounts receivable in your small to mid-size business. As many of you may know, providing clients with the opportunity to pay by credit card comes with a cost, because you're going to pay fees to the credit card company, that can range anywhere from 3% to 5% to accept that credit.

In order to avoid that, many times companies will provide or extend credit directly to their clients themselves. Many times people will allow for discounts if the bill is paid within 10 days or 30 days, and sometimes even larger discounts if the bill is paid cash on the spot, such as 2%, 3%, or even more.

If you're going to extend credit to your clients, you really need to keep in mind that it is very, very important to stay on top of the receivables in terms of how long the debt is owed, how much the debt is, and the creditworthiness of the person that you're extending credit to. Oftentimes, when people are taking credit from a company and it comes time to pay the bill, they're having cash flow issues themselves, and so they may not always be able to pay the bill when it's due, whether that's in 30 days or 45 days. And you have to make a decision at that point, whether you're going to continue to extend them credit, whether you're going to try to take action to collect that debt, whether you're going to turn it over to an outside agency, or sometimes whether you may even need to file suit, either in small claims court or at the common pleas court, to recover the amount that's owed to you.

The other decision you have to make is whether you're going to continue to extend credit to those customers who are seeming to increase their balance with you each month. We've seen it happen where companies have very, very good clients and they continue to extend credit to them because they purchase a lot of product from them, and they've always been a good client, and then all of a sudden something happens, some catastrophic event that forces them into bankruptcy, and the person extending the credit really ends up holding the bag. So, whenever you're going to extend credit to any clients, it's important that you talk to someone, such as your legal counsel, to make sure that you're considering all of the things that you should when making the decision to extend credit to your customers.

If you'd like to talk about this issue or any other legal issue, please don't hesitate to contact me.