If you run a business, you know that Accounts Receivable management (A/R) is one of the most important – and challenging – aspects of keeping your business afloat.
After all, if your customers don’t pay their invoices on time, it can quickly strain your cash flow.
That’s why strong accounts receivable management policies and procedures are so important. But knowing what those policies and procedures should be can be tricky.
So to help you out, we’ve put together a list of the best accounts receivable management policies and practices to be aware of when running your business.
Keep Track of All Payments and Invoices
One of the most important things you can do for effective accounts receivable management is to keep track of all payments and invoices. Doing this may seem like a no-brainer, but you’d be surprised how many businesses let payments and invoices fall through the cracks.
The best way to keep track of expenses and invoices is to use accounting software like QuickBooks or FreshBooks. This way, all your financial information will be stored in one place, and you can quickly generate reports to see who owes you money and when they’re supposed to pay.
You should also keep hard copies of all invoices and payments in a filing cabinet, just in case you need to reference them later.
Send Out Invoices ASAP
Another important account receivable management policy is to send out invoices as soon as the goods or services are rendered. The sooner you can get the invoice into your customer’s hands, the better.
Sending our invoices as soon as possible may seem common sense, but you’d be surprised how many businesses wait weeks or months to send out their invoices. Waiting to send out invoices can cause many problems, like late payments, customer frustration, and cash flow issues.
So make it a point to send out invoices within 24 hours of rendering services or completing a sale. Your A/R management – and your business – will be better for it.
Use Automated Billing Software
If you want to make your A/R management even more manageable, consider using automated billing software. This software can automate invoicing, from creating invoices to sending them out to customers.
Not only does this save you time, but it also reduces the chances of human error. In addition, many automated billing software programs include features like online payment portals and late payment reminders, which can further streamline the A/R management process.
Create a Payment Schedule
One of the best ways to encourage timely payments is to create a payment schedule for your customers. This schedule should outline when each invoice is due and the consequences of late payments.
Your payment schedule should be fair, but it should also incentivize timely payments. For example, you might offer a small discount for customers who pay their invoices within ten days. Or you could charge a late fee for invoices paid more than 30 days after the due date.
Make sure your payment schedule is in writing, so there’s no confusion about when payments are due.
Use Late Payment Reminders
In addition to creating a payment schedule, you should also use late payment reminders to prompt customers to pay their invoices on time. These reminders can be emails, texts, phone calls, or even letters.
The key is to be consistent with your reminders. You don’t want to bombard your customers with too many messages, but you also don’t want to wait too long to send them. A good rule of thumb is to send a reminder once a week until the invoice is paid.
You can also use automated billing software to set up automatic late payment reminders. This way, you won’t have to remember to send them manually.
Offer Online Payment Options
Another way to encourage timely payments is to offer online payment options. This way, customers can pay their invoices with a credit card, debit card, or electronic check.
Online payments are convenient for customers and can help you get paid faster. Many online payment processors will even deposit the funds into your account within 24 hours, which can help with cash flow issues.
Just make sure you choose a reputable payment processor with low fees. You don’t want to lose your profits to offer this payment option.
Ensure Accurate Invoicing
One of the most critical A/R management policies is to ensure accurate invoicing. Doing this means double-checking your invoices for mistakes before you send them out.
Errors on your invoices can cause problems, like late payments, customer frustration, and even legal issues. So it’s essential to take the time to review your invoices for mistakes before you send them out. In addition, you should also have someone else check your invoices for errors.
Using automated billing software can reduce the chances of errors by ensuring that the data entered into the system is accurate.
Hire a Collection Agency
Finally, if you’ve tried all of the above and you’re still having trouble getting customers to pay their invoices, it might be time to hire a collection agency.
A collection agency can help you recoup your outstanding receivables by contacting customers and negotiating payment plans. They can also take legal action against customers who refuse to pay.
Make sure you choose a reputable collection agency with experience in your industry. You don’t want to end up in more legal trouble than before. Some signs of a good company include the following:
- Membership in the Better Business Bureau
- Positive online reviews
- A good reputation with local businesses
Hiring a collection agency is a last resort, but it can be an effective way to get paid what you’re owed.
By following these best practices, you can streamline your A/R management process and encourage timely payments from your customers. In addition, you can avoid common mistakes that can cost you time and money. Not to mention, you’ll also be helping to improve your company’s cash flow.
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