Last Updated Mar 23, 2011 7:11 PM EDT
It's that time of year. Here's how to get started taking out the trash:
1. Separate accounts receivable from accounts deceivable.
Keeping a puffed up AR is kind of like sporting "the emperor's new suit:" You think you're covered but you're not. In reality, you're hanging out there, exposing yourself to useless forecasts.
If you can't or don't want to write off potentially uncollectable accounts, create a sub-account for "doubtful accounts." Do not include them in cash projections, but continue collection efforts and enjoy the windfall if and when you get paid.
Worse than not making a sale is not getting paid for the sales you make. Take the time to analyze your doubtful accounts. Look for internal factors that may have contributed. Try to identify the patterns. We can't control all the bad things that come our way but we can control the bad things we create. Were the losses a result of poor credit decisions, inadequate collection practices, or faulty execution such as billing errors or customer dissatisfaction? What improvements can you make to your credit and collection policies?