For running a successful business, the business owners must establish and maintain a significant Accounts Receivable (AR) management strategy. Proper Accounts Receivable process positively impacts the company as it affects the marketing activities, sales approach, and customer services. People in business always focus on having accurate accounts receivable because if they fail to do the same, their business will have to face problems.
Optimization of the Accounts Receivable process is essential for the business as it affects the business’s various aspects, but many business owners do not understand its importance. Optimization of Accounts Receivable Process increases liquidity as it prevents wastage of existing capital. Due to the increase in the business’s liquidity, the company performs better. It reduces its debt, costs, and funds growth, ultimately helping the business owners grow among their competitors.
As optimization of Accounts Receivable is a crucial part, you can start this process early. Mostly, business owners focus on sales aspects and give importance to ways to increase sales, and they underestimate the importance of the Accounts Receivable function, and they do it later. Instead, if they start the Accounts Receivable process early, they will discuss various topics such as payment terms as the beginning of the customer relationships. Another example of starting the process first is to get a new customer on board by electronic payments.
As business owners do not understand the Accounts Receivable process’s importance, their business faces several problems. Low Accounts Receivable practices result in wastage of time, efforts, and resources of the company, which negatively impacts almost all the aspects of the business. Because of the poor Accounts Receivable process, there will be no accuracy in invoices and bills resulting from which the reports will be of no potential use. So, to make your business successful, you should follow the best practices as early as possible.
Best Practices for implementing Accounts Receivable Collections
1. DEVELOPMENT OF A COLLECTION PLAN:
You can ask your customers about the day most convenient for them to make before making the invoice. Business agreement plays a vital role in finalizing the due date as you can ask some customers to make payments monthly and some weekly.
Various other factors help you make the new business agreement to check your business’s cash flow position. So if you need cash quickly, you can ask your customers to make payment early.
You can also check your customer’s payment history to make the new agreement if they make their payments on time. You can be lenient, or otherwise, you will have to create a new payment plan to receive timely payments from your customers.
You can also look at the billing practices of the field in which you operate to decide if you can follow those billing practices and provide an advantage to your customers by providing more time according to your business conditions.
To streamline the Accounts Receivable process, you can use electronic devices as you can send invoices to your customers electronically so that you can maintain proper and better records.
2. DOCUMENTATION OF THE COLLECTION PROCESS:
After developing the collection plan, you need to ensure that your plan is working effectively and all your customers are following your procedure. You need to document your Accounts Receivable collection process to check the effectiveness of your collection plan.
The documentation of the Accounts Receivable process will help you to reduce errors in billing. You can also audit and optimize your strategy and also to minimize input errors. You can automate some processes or do them electronically.
3. LOG ALL CHARGES AND EXPENSES CONCURRENTLY:
To keep all receipts, orders, and requests in the system for the next invoice, you should scan all these as soon as they arrive. Your staff can anticipate the task for completion of you delegate them the responsibility of invoicing.
4. INCENTIVES FOR MAKING EARLY PAYMENTS:
It is essential to make timely and consistent payments from your customers, as it is an important business aspect. Though there may be situations that companies do not have a good cash position in their business, with the help of various incentives such as discounts, you can motivate your customers to make timely payments.
5. MAINTAINING GOOD RELATIONSHIPS:
You need to ensure that your staff members maintain good relations with your customers and clients. You should understand the feeling of your clients and respect them also. It will help you to preserve Accounts Receivable properly.
6. EFFECTIVE PAYMENT STRATEGY:
There will be some situations where your customers will not make timely payments, even if your staff members maintain healthy relationships with them. It can negatively impact your business’s cash position, reduce your revenue in return for the goods you sell, and if conditions get worse, it can result in bankruptcy.
Though for your business’s smooth running, you should not let these conditions affect your cash flow position in the industry. Sometimes even your customers who always made timely payments will not make timely and consistent payments; in such cases, you can follow the following steps. You can make a friendly call to your customers and clarify if they need more time.
After five days, you can call them again if they do not make the payment and ask them to make payment. You also choose to meet them personally, or you can also use electronic media. By email, you can explain your concerns.
If they do not make the payment, you can send them a Letter of Demand. And receiving the Letter of Demand, if you again do not receive payments from them, you can hand over the case to your debt collection agency, which will help you recover the amount they owe to you. To avoid such circumstances, you can set up all payment expectations at the beginning of the relationship, yielding you better outcomes.
These are the best practices that will help you streamline your Accounts Receivable process and your business. Documentation of your operation, planning, sticking to your plan are the various factors that will help you to increase the working efficiency of your employees, and they will be consistent while handling multiple collections.
To smooth your business and growth, you should follow such practices for the Accounts Receivable Process.
