Tips for Improving Your Accounts Receivable Process

By Randall Orser | Small Business

One of the most important parts of running a successful business is making sure that you are getting paid on time by your clients.  Your cash flow affects all aspects of your business and you need a streamlined and efficient AR process to keep the money coming in.  It is a good idea to set up your AR process when you are starting your business so that customers understand your payment terms right from the beginning of your relationship with them.   

Not setting up your AR system from the beginning can lead to extending credit to unqualified customers as well as not following up on past-due accounts in a timely manner. Poor AR practices take time and money from your business that can be easily avoided.  Not paying attention to the accuracy of bills and invoices and not issuing reports to find potential problems can have far reaching consequences for your business.

Optimizing these Accounts Receivable Processes will benefit your business:

Make sure payments are applied correctly to the correct customer and invoice so that future disputes can be easily settled.  Create a billing dispute process so everyone knows how to handle disputes when they arise.Make sure payments are applied correctly to the correct customer and invoice so that future disputes can be easily settled.  Create a billing dispute process so everyone knows how to handle disputes when they arise.

  1. Maintain accurate client data, update contact information and audit accounts regularly to check for unusual payments, credit terms, discounts etc. making sure that all is in order.  Changes should be documented, and controls put in to prevent unauthorized edits. 
  2. Establish a clear and concise credit approval process - extending credit can be good for your business but there must be a system established that includes instructions on when and how to evaluate and override credit limits and when to put accounts on hold.  The process should be regularly reviewed, and changes made if necessary.
  3. Set up an effective billing process that is accurate and streamlined.  Make sure that all pricing and units of measure are correct as errors can cause many problems.  Invoices should be sent in a timely manner, and reports used to identify problem accounts. Setting up a customer portal will allow customers to access their accounts and check the details easily.  Bill clients electronically if possible, this will make the billing process more accurate and cost effective.
  4. Make sure payments are applied correctly to the correct customer and invoice so that future disputes can be easily settled.  Create a billing dispute process so everyone knows how to handle disputes when they arise.
  5. Payments should be applied quickly so that you always know which accounts are current and which are past due.  Monitor your AR at least once a week to quickly identify and correct errors.
  6. Optimize the payment process by offering your customers a number of payment options such as e-transfer or retaining a credit card on file.  
  7. Consider reducing your payment terms, you do not have to use net 30 days you can decide what is best for your company.
  8. Once delinquent accounts are identified your collection strategy should be consistent and methodical, make collections a top priority.
  9. Automate your accounts receivable process as much as possible to avoid errors.

You don’t have to make these changes to your billing and collections process immediately but any steps that you do take will help to optimize your accounts receivable and will pay off in the future.

 

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About the Author

President/CEO Number Crunchers® Accounting Inc. Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.