Proper accounts receivable management has a significant impact on the revenue and healthy cash flow of your business.
Efficient Accounts Receivable management strategies can help timely payments, happy client relationships, and high liquidity for your business. Poor management, however, can lead to wasted staff time, accounting errors, lost revenue, and poor cash flow.
Here are 9 accounts receivable management strategies to improve and make payment collection smooth and efficient:
1.Integration of Electronic Billing & Online Payments
Say goodbye to paper bills and slow mail that can easily get lost. Instead, make the smart move to an electronic invoicing system. This system allows your clients to make quick and easy online payments.
Combine your billing and payments into one integrated system or accounting software. This not only automates your record-keeping but also reduces the chances of human errors and lightens your workload.
Opt for invoicing software that includes integrated payment processing. This way, clients can click directly from their bill to make a payment, and the system will automatically record the payment for you. It also enables you to set up personalized and systematic follow-ups for late payments. This way, your business can efficiently collect payments while maintaining customized communication with each customer, without wasting any time.
2.Outline Clear Billing Procedures
Approach your billing process with clarity and consistency. Establish standardized procedures to ensure uniformity across your company.
Key elements to include in your billing process:
- Clearly defined billing periods and invoicing dates.
- Determining the essential information for each invoice, such as Purchase Order numbers and addresses.
- Establishing efficient record-keeping procedures.
- Periodically assessing and following up on accounts receivable processes.
- Implementing collections procedures for overdue payments.
- Maintaining updated billing contact information for each client.
- Addressing unique billing details or steps specific to each client, if applicable.
- Providing clear payment details and relevant notes for each client.
3. Set Credit & Collection Policies — and Stick to Them
Decide whether to offer credit to clients and establish clear credit policies. Simplify the process for your team to decide on granting credit.
Have clear AR collection policies for a proactive approach to handle overdue accounts. Instead of reacting to late payments, send reminders before the due date (check our payment reminder templates!).
This approach keeps communication open, ensuring customers are aware of upcoming payments. Every interaction, like customer success, is an opportunity to remind them.
When sending the latest invoice to a customer with multiple past due invoices, take it as a chance to remind them. This streamlines the collection process and avoids confusion for customers.
4. Use the Right KPIs
To ensure accounts receivable management best practices , monitor these key performance metrics:
- Days Sales Outstanding (DSO): Optimize your processes to reduce DSO, which represents the average time taken to collect payment. Aim for a DSO below 30 days.
- Average Days Delinquent (ADD): Minimize ADD, indicating the average number of days client payments are overdue. Regularly check your processes for smooth billing and sufficient staffing for collections.
- Turnover Ratio: Keep this ratio low to show how quickly you’re converting accounts into cash. A high ratio signals uncollected revenue, prompting a review of billing and collections processes.
- Collection Effectiveness Index (CEI): Aim for a CEI close to 100%, indicating successful collection of payments from all clients.
- Revised Invoices: Strive to minimize revised invoices, as an increase may signal issues with billing policies or staffing efficiency. Regularly assess and adjust to avoid payment delays and errors.
5. Collect Payments Proactively
With clear procedures or Account Receivable software in place, you can be proactive about collecting payments. Create workflow automation where you’re prompted to contact a client on the first day a payment is late, so they’re aware of their payment terms and any overdue balances immediately. Make sure to clearly outline the steps on how they can make a payment.
Electronic billing and payment systems can help centralize and resolve invoicing and payment matters with your clients.
6. Set up Automations
Make managing your AR process easier by using account receivable automation . Automation means letting the computer do repetitive tasks, like sending emails and reminders. This frees up your finance team to talk to customers and make sure payments happen on time. AR automation software helps by sending standard emails and reminders automatically.
It’s like having a robot assistant. Even if you still use paper billing, you can use special programs to save time. For example, you can set up reminders or send thank-you notes when payments come in. Automation helps your team and makes sure customers know what they owe and when to pay.
7. Make Payments Easy for Customers
Simplify managing payments with an automated accounts receivable (AR) software. Often, payment issues arise from problems with invoices or payment methods, not the actual transaction. Did you know that 70% of payment reminders are technical, not commercial?
This means the problem is in the process, not your business. To fix this, automate parts of your AR process with workflow automation software.
Consider using a payment portal to share all needed information in one place. Late payments don’t always mean a customer is bad; it might be your strategy. Make paying easy by offering online options and clear instructions. This builds good relationships and ensures timely payments, improving cash flow.
8. Involve All Teams in the Process
A recent survey found that 90% of people think sales teams shouldn’t help with getting payments. But that’s not true! Sales teams are crucial to turning closed deals into cash for the company. Many think only the finance team should handle payments, but it’s a team effort.
All client-facing teams, like sales, should be part of the process to boost efficiency and prevent mistakes. This teamwork is essential for successful cash collection and aligns with automated account receivable software, workflow automation tool, and seamlessly integrated data management. Everyone in different departments plays a key role in the process.
9. Build Strong Relationships:
Building strong customer relationships is crucial. Open communication eases handling payment issues, fostering trust for timely payments and overall rapport. It’s beyond transactions; it creates a positive atmosphere for smooth financial discussions. Focusing on robust relationships makes it easier to address payment concerns cooperatively.
Managing accounts receivable using AR Automation Software
Simplify your business process and save time by automating manual tasks with accounts receivable software. At peso, we offer solutions for efficient customer payment collection. Set up personalized reminders for overdue invoices and provide various payment options like wire transfer, direct debit, or credit card/debit card for goods and services sold.
We ensure easy tracking of your KPIs through straightforward financial reports. Make sure your sales and finance teams know what’s going on by talking clearly, using dashboards, and giving them tasks. This helps everyone stay in the loop about the money coming in.
Should You Outsource Account Receivables Management?
Choosing Peso’s specialized AR software over outsourcing offers a cost-effective and transparent solution for automating tasks ,better customer service, increased efficiency and keeping your balance sheet healthy & working capital optimized.
Unlike outsourcing, Peso empowers internal teams, maintaining control over approval processing , and fostering customer relationships. With automated processes, Peso streamlines collections and ensures timely communication minimizing the bad debt.
To discover the top AR software deals, thoroughly research your needs and find the best-fit tool among the available options.
While outsourcing may seem tempting, it often falls short in understanding your business dynamics. Peso’s collaborative features allow various team members to intervene effectively throughout the collection process.
Don’t go for outsourcing problems; select Peso to solve internal issues, boost efficiency by automating tasks and maintain a smooth connection between your teams and clients.
Key Takeaways
Effectively managing accounts receivable is crucial for enhancing cash flow, reducing costs, and fostering positive client relationships. Embrace key accounts receivable management strategies to streamline processes and optimize financial efficiency.
Transitioning to electronic billing facilitates smoother customer payments. Incorporate accounts receivable management best practices by leveraging AR software to automate workflows, allowing the finance team to focus on essential tasks.
Regularly monitor key AR metrics to assess and refine collection strategies. Explore our free Discover plan for real-time tracking of your receivables management. Recognize that successful cash collection is a collaborative effort; involve your sales and customer success teams in effective payment reminders.
While outsourcing accounts receivable management may seem tempting, addressing internal process-related challenges is often crucial for resolving payment issues within your business. These comprehensive measures ensure sustained financial health and success in managing accounts receivable.