Day: April 8, 2021

The Business Case for Cash CollectionsThe Business Case for Cash Collections

Cash collections is a general function of accounts receivable. It’s the retrieval of money from a person or company with which you’ve issued an invoice. For most businesses, invoices are issued for items that are received, and invoices aren’t usually “due” until they’re a month after they’re received, or a few months after they’re due. The fastest way to collect receivables on an ongoing basis is through cash collections.

 

There are different ways to go about building cash collections. In some cases, your company could issue invoices to customers whose checks do not clear, in which case you would use your cash collections process to collect on those accounts. Your other method of building cash collections involves issuing invoices for services that your company offers, and collecting payments on them. For example, you might bill clients for services such as postage stamps, stationery, or insurance. When you bill these clients, they generally have a certain amount of time in which to pay you, so you can build cash on their account before their billing cycle ends.

 

Some companies have both built-in cash collections and work-around methods for getting money owed to them from customers. For instance, construction companies may have cash collections processes built into the cost of certain materials, so that when the contractor’s job is complete, and they’ve paid you for your materials, you can then issue them a check for their outstanding balance, which will ultimately eliminate the need for them to take out a second loan. Another common work-around for cash collections is to issue invoices for goods sold to customers that have shipping expenses added in. These invoices are collected, and, if the client still has a balance owing on the product, it will be turned over to a collection agency to get that client’s outstanding balance paid.

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