Implementing a clear and concise Accounts Receivable invoicing and collection process will allow your business to get paid faster and provide a more healthy and predictable cash flow projection ability for the coming year and/or years.
Accounts Receivable Best Practices
Below are some steps you can take for a better approach to AR collection:
1. Create an accounts receivable payment follow-up policy and assess collections regularly.
- The policy should apply to all customers. Any time your customer misses a payment, the Accounts Receivable team should send out a reminder, following up with a statement to reflect outstanding balances each month until the outstanding balance is paid.
- Talk about payment terms upfront. Make sure that ALL customers are aware of your payment terms policy, as you will have a better collection rate if the policy is clear from the beginning. If a policy is in place regarding late payments, kindly remind the customers of any penalties or fees they may face for late payments in the future.
- Stay in contact with your customers. If customers see that Accounts Receivable collections are a priority for you, it will be for them as well.
- Review AR Aging Reports regularly. This can help address any problems before an invoice is past due.
2. Track performance indicators to better understand the average time it takes to get paid.
- Average days to invoice
- Turnaround time to get paid after an invoice is sent. Run a weekly Aging Receivable Report that will show you the age of the invoice and due dates.
- Invoicing disputes, credits and or returns
3. Accept electronic payments.
Accepting electronic payments will allow you to get paid faster, easier and more efficiently. Here are some available electronic payment options:
- Automated AR Workflow – i.e., Bill.com – e-payments credit cards, international wires
- Acceptance of payments via credit card
4. Consider implementing an automated Accounts Receivable software workflow.
Implementing an automated Accounts Receivable software workflow is an easy way to streamline internal processes. An accounting system such as QuickBooks Online (QBO) or Bill.com will help you to:
- Eliminate time spent chasing invoices and manual processes
- Automate the generation of reminders and recurring invoices/statements based on clients invoicing schedules
- Reduce administrative costs
- Better projection of future cash flow
Inconsistent cash flow is an organization’s top concern. Being proactive in your accounts receivable processes will enable your business to be in a better cash position, improving customer service and satisfaction and reducing errors and administrative time.
Think your business needs help with managing your accounts receivable or accounts payable functions? Reach out to Withum’s Outsourced Accounting Systems and Services Team.