Best Practices to Improve Accounts Receivable Management

Best practices to improve your accounts receivables management

Accounts receivable management is an area of your finance function that can dramatically impact your business cash flow.

It is also an area that you must pay close attention to maintain a financially healthy and sustainable business.

When accounts receivable management is done right, you avoid overdue payments, invoices are paid promptly, you can achieve a happier client/business relationship, and your business keeps its cash flow flowing.

Of course, the alternative is to continually waste time, resources, and money chasing overdue invoices and outstanding debt; you experience more accounting errors, lost revenue, and your cash flow is negatively affected.

This post looks at some best practices, tips, and processes you can implement to improve the management of accounts receivables for your business.

What is accounts receivable management?

Outstanding amounts owed in businesses are known as accounts receivables management, an area of business finance that can’t be ignored.

It requires ongoing attention to detail, as you monitor and manage customer payments, track invoices, collect on outstanding invoices, look into payment disputes, and much more.

Ultimately, it helps to ensure healthy cash flow, collect on monies owed, reduce errors, and keep your accounts as accurate as possible.

Best practice to improve your accounts receivable management

Have a clear invoicing process

How do you currently invoice? Is the invoice issued as soon as the order is placed? Once the order has been received? Shipped, etc?

Are invoices created and issued manually, or is this task automated? Have you checked you’re sending invoices to the right people?

A clear process on how and when your invoices are issued marks the start of your accounts receivables process. And getting this right from the beginning can help put you on the right foot going forward.

Creating clarity and consistency, your invoicing process should be documented, so everyone follows the same system – creating uniformity in the business.

Monitor your account process

You need to continuously ensure that your processes are working, which means you must

carefully monitor the areas of your finance function.

You can identify areas for improvement when you begin to analyse how long it takes your business, on average, to receive payments, for example. How many days, on average, invoices are overdue? Are you collecting on all invoices? Do you have any outstanding?

How many per month? Have you had to revisit any invoices to make changes? If so, why?

What happens when an invoice becomes overdue? Whose responsibility is to collect overdue invoices? Is this done in-house or outsourced to a collection agency? (Note: if outsourced, look to work with professionals who can help minimise the impact of late payment, collect on the monies owed effectively and efficiently, and enhance cash flow while reducing your business debt).

All of this information helps you better understand where improvements could be made to support your business and ensure you’re paid on time every time.

Outline your credit and collection policies

Credit and collection policies should be clear to all customers and employees. Everyone must know due dates, early payment discounts, late payment fees, interest charges, terms and conditions, responsibilities, obligations, etc. Everything must be documented and communicated to all parties.

A proactive approach to overdue accounts is vital in streamlining your collection process.

For those struggling with unpaid invoices outside the collection process boundaries, check out our latest post on Credit Insurance and some of the benefits of investing in this.

Be proactive in collecting monies owed

In a perfect world, all businesses would have a robust process activated as soon as an invoice becomes overdue.

However, we know this isn’t always the case, but we do advise it is something to work toward.

To support you in this endeavour, you could automate specific tasks; for example, with the right software, you can automate overdue invoice emails, outstanding invoice template letters, and statements that can be issued regularly. Automation allows you to regulate those repetitive but vital tasks, which are often time-consuming and are of low value to your business.

Offer various payment methods

You need to make it as easy as possible for people to pay (reducing the time it takes for you to get paid), which means having a range of payment options available. Removing roadblocks to payments and making them quicker and more convenient can avoid late payments and provide a more streamlined experience.

Involve all teams

Everyone within the business should be aware of your collection processes and policies.

From your sales team closing the deal to the admin team posting the invoices and your finance team chasing late payments, everyone has a role to play, and the greater understanding of your collection policies everyone has, the more chance of a seamless experience.

We believe that efficient collections mean everyone in the business must be on the same page, helping to increase efficiency, reduce errors, and avoid wasting time.

Management of accounts receivables

Late payments aren’t always because customers don’t want or forget to pay. Sometimes, it can mean a problem within your invoicing or payment processes.

By introducing some best practices and continually monitoring these, you can make improvements that support your business cash flow and improve your relationship with your customers.

For more information on our debt collection practices and how we can support your business, call us at +447860197476 or email your requirements to memberbenefits@directroute.co.uk