If your business like the majority of businesses provides services and products on credit, then you must have known the impact of Accounts receivable on your cash flow and bottom-line. And also by now, you must have known how most of your clients and customers often fall short of paying on time which has its direct consequence on your cash flow cycle.
The reasons may vary, but most businesses suffer from delinquent Accounts Receivable management but only a few manage to correct them as per their cash flow requirements. Having helped many businesses improve their Accounts Receivable collection and management with our Accounts Receivable Services, our accounting experts can offer help if you are experiencing problems with your AR management.
Given we receive many queries from SMBS, we try to provide simple actionable tips on efficient Accounts Receivable collection in this blog which we hope will help you. Read on:
Accounts Receivable Management – Tips for Better Collection:
Having an effective Accounts Receivable is key to ensure faster access to the cash which is crucial to achieving the goals of your business both short term and long term. Incidentally, a tax and inefficient Accounts receivable process produces a ripple effect across all aspects of business further diminishing your overall returns and draining your money and productivity.
On the other hand, making a few changes in your Accounts Receivable policy can significantly improve the whole process and enhance the collection to optimize your working capital to further invest for business growth. Here are a few tweaks and fine tunings you can make in your Accounts Receivable process:
- Have an Account Receivable dashboard: As a business owner you need to have clear visibility on your finances and often it must start with the AR, given it is a major source of cash flow. If you are only starting, it is only a matter of time as you run into late payments and of course, no payments (yeah it does happen) and you are bound to make hard decisions. Having a dashboard for Accounts Receivable help you have greater visibility on your cash flow helping you dip your head into the KPIs, and benchmarks to quantify your performance and this will significantly help you make better decisions when thing go south.
- Know your current status: Management starts with measurement which is why you must know the current status of AR. And creating an AR ageing report to track the current payment status of your clients is the first step you can take in this regard. This report helps you break your accounts based on the ageing period – the number of days since the last issued invoice. Having this report at hand helps you track the payment status and address the potential problems.
- The focus of move quick on past-due receivables: Everyone in the Accounts Receivable can attest to a simple fact – the longer a past due goes, the higher is the probability of losing the collection. Now that you have an ageing report at hand and know the track record of your clients, focus on ageing receivables that are past their due date which you must start by contacting the client on the very first day the payment becomes due. Have a timeline in place with tight and focused communication divided into stages – mails, in-person communication, and revision in payments with flexible terms and more can help too.
- Early payment discounts help: Speaking of late payments and revised payment terms, an even better way to persuade clients for early payments is to offer discounts for a set period and a reminder for the clients who missed to bag them. Since the discounts vary based on the industry At Back Office Accountants, our accountants actively work with banking professionals and industry experts and our clients of course to zero down on the discount rates and terms.
While there are many tips which we have covered deeply in our previous blogs, the above tips are simple tweaks which most business who face Accounts Receivable problems miss out on.
But as we have always insisted, the most simple and productive way to improve your Accounts Receivable process is to ditch manual AR and automate your Accounts Receivable process as much as possible before you run into problems. That said automating AR thus come with its own set of problems – infrastructure lack of expertise and customizable solutions. If automation is not practical for your business at this point you can reap all the benefits of automated Accounts Receivable by outsourcing Accounts Receivable to remote accounting firms like us at Back Office Accountants. For more information on Accounts Receivable Services from Back Office Accountants, You can contact us here: https://www.backofficeaccountants.com/