Closing the Year Strong: Managing Receivables and Payables in Q4

Money owed to you and money you owe others sit at the heart of cash flow. In the fourth quarter, both deserve extra attention. Customers may slow payments while they close their own books, holiday schedules interrupt routines and year-end decisions about spending can affect your finances. A few weeks of focused work in October and November can make the end of the year far less stressful.

Review your receivables aging

Start with an aging report, which groups unpaid invoices by how long they have been outstanding, commonly in buckets such as current, 30, 60 and more than 90 days past due. Most accounting software produces this automatically. Look for:

• Large balances that have been outstanding for a long time.
• Customers who consistently pay late.
• Invoices that may be disputed or forgotten.
• Accounts that may never be collected.

Collect before the holidays

Collection is easier before offices close for the holidays. A steady, polite process works best:

• Send a reminder shortly before the due date, not only after it passes.
• Follow up on overdue invoices on a regular schedule, by email and then by phone.
• Ask whether there is a problem with the invoice that is holding up payment.
• Make paying easy by offering convenient electronic payment options.
• For larger balances, consider offering a payment plan rather than waiting.

Some customers have year-end budgets that need to be spent. If you have upcoming work for them, it may be worth asking whether they would like to prepay or schedule it before their year closes.

Get control of payables

On the other side of the ledger, review what you owe. Confirm all supplier invoices are recorded, look for duplicate or incorrect bills and note any early-payment discounts that may be worth taking. Strong supplier relationships are worth protecting, so communicate early if you need to adjust payment timing. Also watch for fraudulent invoices and requests to change vendor bank details, which tend to increase during busy seasons. Always verify changes by calling a known contact.

Clean up before year-end

Year-end is a natural time to tidy the books:

• Reconcile customer and vendor balances with statements where possible.
• Clear out small unapplied payments and credits.
• Discuss with your accountant how to handle invoices that appear uncollectible.
• Make sure contractor and vendor information is complete, since year-end tax forms may require it.

Improve the process for next year

Use what you learned this quarter to tighten your process going forward. Clear payment terms in contracts, deposits on large jobs, prompt invoicing and automated reminders all reduce late payments. Review payment terms with your largest customers and suppliers so they match your cash needs. Decisions about the timing of payments near year-end can have tax effects, so talk with your accountant before making significant moves.