5 Strategies for Effective Accounts Receivable Management

One of the biggest barriers to proper cash flow and a source of anxiety for many business owners is overdue accounts receivable (AR). Getting a customer is a big win for you and your marketing/sales team; getting that customer to pay in a timely manner is essential for your company’s financial health.

Besides hounding your late-paying customers (which may not be the best approach for customer satisfaction), here are 5 steps you can take to effectively manage your accounts receivable and get that much-needed cash in the door:

  1. Sign a Contract and Check Credit. Managing accounts receivable begins before the first invoice goes out the door. With the guidance of legal counsel, develop a binding contract or engagement letter that sets forth your payment terms. Run a credit check on prospective clients to see if they have a history of late payments or bankruptcies and other financial troubles.
  2. Track Accounts Receivable. A key part of this process is to effectively track accounts receivable. You should always know which accounts are outstanding and for how long. Run reports to highlight payment trends and which customers are frequently behind. You can also set up alerts that will tell you when a customer is overdue or soon to be overdue in their payments to allow for more effective follow-up.
  3. Make Payment Easy. Give your customers the options they need to pay you quickly. Look into accepting credit cards or allow direct transfers of payments. Depending on your business, Paypal or another mobile payment solution could also be a good fit. Yes, many of these methods require a cut of the transaction total, but if overdue payments are haunting your business, it is likely worth the cost.
  4. Do Your Part. A delayed invoice will obviously lead to delayed payment. Make sure you tie up loose ends on your side of the equation and ensure that invoices are sent out in a timely fashion.
  5. Re-Think Your Billing Approach. If billing after you finish the work is causing some problems, reassess your payment terms. Ask clients to pay you in installments throughout the engagement, and/or require a deposit before work begins. If you’re not ready for a step this big, start with simply shortening your payment terms.

It’s easy to get so absorbed in delivering your products/services that you forget to tend to the operations that allow your business to run smoothly. You can, however, help prevent account receivable problems by establishing the correct processes and regularly reviewing the data. A little time and oversight will help you effectively manage this tricky business area and keep you in the black.

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