Accounts receivable maintenance – why is it important?
The revenue and cash flow of your business are significantly impacted by accounts receivable management. A regular accounts receivable clean up can add up to a substantial amount of cash flow for your business.
In many businesses, past-due invoices often get pushed to the back burner for many different reasons: operational challenges, employee changes, or new accounting software. Prioritising the time to clean up your accounts receivable will help you avoid writing off or sending invoices to collections.
Unless receivables and due dates are regularly monitored and audited, past due invoices may result in too much cash being deemed non-collectible. You may find it difficult to get payment from clients who have a problem with your agreement and even end up damaging existing business relationships.
An audit of receivables may be chosen by many accounting departments at the end of a fiscal year or during tax season. Your accounts receivable department could be one of your company’s most valuable assets, so once a year cleaning up just doesn’t make sense.
The best way to clean up your accounts receivable
Accounts receivable can be cleaned up by maintaining a regular self-audit of receivables and collections. Making it a regular calendar event is the easiest way to do this. Here are some other suggestions to help you clean up your accounts receivable:
Make use of invoicing software that integrates payment processing, such as Xero, so your clients can initiate payments right from their bills, and the system can record them automatically. You can also set up options for customised, systematic follow-up when payments are late. Without wasting any of your time, you can keep track of payments and maintain tailored communications for each customer.
Set credit & collection policies — and stick to them
There may be clients for whom you do not wish to extend credit. If you do, set clear credit policies before you extend credit to some clients. If a client asks for credit, make it easy for anyone in your business to extend it. Also verify that outstanding invoices match the agreement or order by reviewing the invoiced amount.
Analyse previous audits to see if some accounts are regularly late in paying
Make sure you notify a client the first day a payment is late, so they’re aware of their payment terms and any overdue balances. Make sure to clearly outline the steps on how they can make a payment.
Make Payments Easy for Customers
Payment issues are usually caused by clients not receiving, viewing, or understanding invoices, or by their lack of access to quick and convenient payment methods. It’s estimated that 70% of payment reminders are technical rather than commercial. Therefore, the real issue here is not the transaction itself, but the method of payment. If you want to get paid, it needs to be a straightforward thing to do. Remove any roadblocks in the customer payment experience and streamline the process.
What Is Accounts Receivable Management?
What are the next steps that business owners can take to tackle these – and other challenges?
Accounts receivable (AR) is any money your clients owe your business. Accounts receivable management is the system of processes you put in place to track that money, including:
- Billing and invoicing
- Payment processing
- Communications with clients
- Internal communications and processes
- Collections processes and credit policies.
Exactly what is the purpose of accounts receivable management?
Accounts receivable management aims to minimize the time it takes to get paid and eliminate any risk of bad debt by optimizing billing, payments, and collections.
Your AR management should include establishing and following billing and payment standards and practices for your business. By doing so, you’ll avoid late payments and get paid on time.