Best Accounts Receivable Management Practices


If you run out of money, your business is most likely to fail. Because of this, effective cash flow management is crucial to the profitability of your business.


Poorly managed accounts receivable are a frequent cause of cash flow issues (particularly for small and mid-sized enterprises). The less money you have access to run your firm, the more cash is locked up in receivables as a result of slow payers and past-due accounts.


Additionally, improperly handled revenue cycle accounting will cause disruptions in cash flow (e.g., delayed invoicing or no invoicing of the customer). When businesses provide goods or services to clients, they frequently incur internal labour costs or vendor fees without having the cash flow to cover those expenses. Every business needs a reliable bookkeeper.


What Is Accounts Receivable Management?

The process of giving consumers credit, sending out accurate invoices, and obtaining prompt payments from clients is known as accounts receivable management (A/R). A business manages credit sales according to a set of rules and regulations.


Credit assessment is the first step in managing accounts receivable, and collection is the last. An effective A/R management system should have a collection programme, industry-appropriate credit period, and standardised credit standard.


What Purpose Does Accounts Receivable Management Serve?

Effective accounts receivable management aims to streamline your invoicing, payments, and collections procedures to cut down on payment processing times and eradicate the possibility of bad debt.


For your company to facilitate effective billing and payment for your clients, AR management requires developing and adhering to standards and practices. So doing entails receiving payment on time and preventing late payments.


Best Practices for Account Receivable Management

What can you do to guarantee that your bookkeeper or accounting team is correctly managing your revenue cycle and maximising cash inflows? Start by adhering to the following practices for revenue cycle management in accounting:


1. Utilise electronic billing and payment

Get rid of paper checks, paper billing, and snail mail. Those take a lot of time to track and are simple to lose. Change to an electronic invoicing system that enables clients to conveniently make payments online. Integrate your payments and billing.


Your record-keeping is automated in this way, leaving less for you to remember and less room for human error. Utilise invoicing software with integrated payment processing so that customers may pay you directly from their bill and the system can track payments for you automatically.


Additionally, you can set up alternatives for individualised, methodical follow-up when payments are overdue. Without wasting any time, your company can keep up with payment collection and maintain customer-specific correspondence.


2. Be Proactive

You may be proactive with money collection if you have clear procedures in place. Create a procedure whereby you are required to get in touch with a client on the first day that a payment is past due so that they are instantly informed of their payment terms, any outstanding balances, and the procedures necessary to make payment. Invoicing and payment issues with your clients can be centralised and resolved with the use of electronic billing and payment solutions.


For instance, you can configure invoicing software to contact clients once per week until the account is cleared after the first day that a payment is late.


3. Establish credit and collection policies and adhere to them

You could or might not be interested in offering credit to some customers. If you do, establish clear credit policies in advance to prevent giving some clients too much credit and to make it simple for everyone in your company to decide whether to grant credit when a client seeks it.


Similar to how you may streamline your process and take a proactive approach to deal with past-due accounts when you have clear AR collection procedures. Your collection policy should outline regular reviews of accounts receivable as well as actions to be taken to contact clients and pursue unpaid balances.


4. Make it simple for the clients

The majority of payment problems you'll experience come from clients who either have trouble receiving, viewing or comprehending your bills or who lack access to an efficient payment option.


Create a system that is simple for clients to use and will result in a pleasant customer experience to get rid of those problems. To prevent setting off spam filters with an attachment, use an electronic invoicing system that distributes invoice details and links right within an email.


Create simple electronic payment portals with several payment methods so that customers can pay online (for example, with a credit card) as soon as they read your invoice. These actions can improve customer relations and prevent unpaid invoices from clients.


5. Establish automation

By automating account conversations with your clients and eliminating manual processes whenever possible, you may save time and improve consistency in your workflow.


You may set up a form email to send with an invoice, a thank-you email to send after payment, and reminder emails to send when payment is past due using account receivable management software, which should take care of this for you.


6. Get All Teams Involved in the Process

Your accounts receivable procedure shouldn't be restricted to your accounts receivable staff. It keeps everyone on the same page and involved in the administration of AR if all client-facing teams, such as the sales team, are made aware of the procedure.


It improves productivity, prevents duplication, and gets rid of errors that could waste time or hurt your company's bottom line.


7. Employ the proper KPIs (Key Performance Indicators)

Monitor these AR performance measures to make sure your receivables processes are operating as intended.


Without a reliable method to support you in effectively managing A/R transactions, managing A/R can be difficult. Customers that pay late and a shortage of cash when you need it are two consequences of poor A/R administration.


You may enhance your credit granting and collection process and provide even better customer service by utilising our accounts receivable best practices.

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