When you sell goods or services to a customer, you may allow the customer to pay the due amount later. This amount is an asset for your business that you need to collect, and it is clubbed under the accounts head – Accounts Receivable. As your business grows, you will find that you have increase value in Accounts Receivable. While accounts receivable is one of the most visible and the largest assets on a balance sheet, it is worth nothing to the business owner until it is collected in due time. Having accounts receivable just sitting there will only obstruct the cash inflow and might even turn into bad debt without proper accounts receivable (AR) management.
Many businesses even try to avoid accounts receivable and deal on a cash basis only, but the problem here is that not all businesses can do so. While it is still possible for some industries, it is an unavoidable part of the business for some industries. That is why proper AR management is essential for your business. You can hire accounts receivable services provider who can help you ease the process for you, but it is your responsibility to ensure things are functioning as they are supposed to be. Let us learn how you can optimise your accounts receivable process.
How to optimise the Accounts Receivable process?
1. Get it right from day one
You must plan from day one. What we meant here is that from day one, you should be wary of whom you are getting in business with. This step might feel like a no-brainer, but many businesses face bad debt because they choose to partner with vendors and clients who are not the right fit for their business. Do your research, run a credit check or talk to others who provide supplies to them.
2. Guidelines & Policies
You must set specific guidelines and policies which your employee and customer have to follow. You must put the payment term in writing. Things like credit period, late fee, or penalty should be pre-decided and taken down on paper instead of just verbal notes; it is best to avoid any misunderstandings.
Additionally, you should not make any exceptions to these rules. Set a policy with all the details of how you are supposed to handle any delay in accounts receivable and at what point it is important to involve a collection agency.
3. Sending Invoice on Time
You must not delay in sending the invoice. Processing invoices on the client’s end might take some time, and you can only hope to make this process faster if you act on time. Even better if you use e-invoicing which will make the process a whole lot faster than too without scope for error.
4. Convenient Payments Mode
You must try to make the payment method as convenient as possible for your customer. Make it easy for customers to pay you by using accounting software that allows you to send payment links and regular reminders. This software can also automate the payment reminders on a set interval, making things much easier for your accounts receivable team.
Of course, you can’t let your accounts receivable sit there in your financial statement without acting upon it. The accounts receivable will only keep on piling up if you do not follow up with your debtors and remind them regularly about their due. As mentioned earlier, you can use accounting software for this task, and if you seem to lose hope in any debtor, you can hire a collection agency to do so on your behalf. Keep a keen eye on the aging report to make sure you are following up with the debtor.
Accounts Receivable plays a major role in your cash inflow, and many tend to not pay attention to it until there is a cash crunch. An efficient accounts receivable management will enable you to streamline your cash flow and help you avoid bad debts. You must monitor every debtor to know whether they are paying on time or not. Debtors are important for your business, and you must make sure you don’t have a conflict with each other is also vital. If you must, you can outsource your accounts receivable to help you efficiently deal with your debtors.
A outsource accounts receivable services provider can help you with AR management so that you can focus on your core business activity. They can help you follow up with your debtors, prepare aging reports, send out regular reminders, negotiate with the debtors and even raise a red flag when there are any issues with the debtors.