When It’s Bad
If you do find you have purchased A/R assets and find they are falsely stated or if you find yourself over-valuing your A/R, what can you do?
If you do purchase account receivables and find their not truly stated and likely uncollectible, there’s probably not much you can do except to write these off as bad debt expenses at tax year end. If you feel you can collect on some of these past due accounts, consider the cost of collection compared to the expense deduction you’ll gain at year end—weigh both options and choose the best one. Close any customer accounts that aren’t current and offer a truthful explanation.
If you know the receivables listed on your balance sheet aren’t true dollars you can collect, consider using a balance sheet that shows the total number of A/R plus an additional column showing past due amounts in days (30, 60, 90, 120+). This way, if an investor or lender looks at your balance sheet they will see right away you’re being upfront and honest about your actual A/R without looking at the detail (although they may ask for it anyway).
Follow some best practices when it comes to collecting on receivables to ensure you’re paid on time and get that much needed cash to keep your cash flow positive, not negative. Even if you must implement late fees or interest on past due payments, do so. Once an A/R customer is faced with fees the first time, they’ll be more likely to pay on time.
Finally, invest in accounting software to track your receivables. Keeping figures in your head or in an unorganized format will only result in missed payment, posting mistakes and debts owed to your company not paid in full.