It’s essential to have positive cash flow in your business. Cash flow impacts your small business success in several ways including your business credit score, your ability to get a business loan, and the day to day functioning of your business. To keep your accounting records in the black, learn how to stay on top of money owed to your business.
Side Effects If You Fail To Collect Money Owed To You
One way that poor debt collection practices can negatively affect your business is your credit score. Your business credit score is partially calculated by a determination of the ratio of business income compared to your business debt. When the ratio become heavily tipped on the side of debt versus income, as it would be when you’re not collecting money owed to your business, your business credit score drops.
Another side effect of failing to collect debt on a timely basis is an inability to get a business loan. Loan officers want to see that you have a consistent and positive cash flow coming into your business coffers. If you have too much money in your accounts receivable column compared to your bottom line, this can indicate to the loan officer that you aren’t well equipped to handle your finances. Banks aren’t to eager to lend to people who don’t know how to handle their money.
Finally, failing to adequately collect money that is owed to your business can negatively and dramatically affect the day-to-day functioning of your business. As a business owner, you know that you have certain recurring expenses related to running your business. Maybe you have to pay for daily food deliveries, daily fresh flower deliveries or for your chef’s morning purchases from the fresh market downtown. Whatever those daily expenses are, you won’t be able to make them without positive cash flow.
How can you improve your accounting tactics to stay in the black and not dip into the red?