Page 261 - merged.pdf

CHAPTER 8 MASTERING YOUR MONEY

There are four components of the Balance Sheet that you
need to constantly measure and improve upon. They are: 1)
accounts receivables, 2) inventories, 3) account payables and
4) bank loans.

1) Accounts Receivables (AR)
As a component of your current assets, account receivables
refers to the money that is owed to your company by customers
who have already purchased the company’s products or
services but have not yet paid.

When you are in a Business to Consumer (B to C) business,
AR is usually not an issue since customers usually pay
before/immediately after they have purchased your products
or services.

However, in Business to business (B to B) businesses, it is
common practice that your customers will only pay you 30-
60 days after they have received your products/services. The
problem is that you if don’t actively chase for payment,
customers tend to drag their payments way beyond the 30-
60 day period.

When this happens, it can be detrimental to your company.
If your company is not able to collect this money fast enough,
you will not have enough cash to pay your expenses and pay
your debts. What is worse is that after a while, the customers
who owe you money may close down or file for bankruptcy,
leaving you saddled with thousands in bad debts.

I have seen so many examples of companies (especially in
the advertising & event management industry) who went
bankrupt simply because they did not monitor their AR closely
and were not efficient at collecting payments from their

252 SECRETS OF BUILDING MULTI-MILLION DOLLAR BUSINESSES