How to Improve Accounts Receivable Management

• Effective accounts receivable management allows you to minimize expenses while maximizing cash flow.
• Maintain positive client relationships with successful management of accounts receivable.
• Effective accounts receivable management enables you to collect at a higher rate.

The way you manage your company’s accounts receivable will either have a positive or negative effect on your profits. Identify the best practices and implement them to achieve your objectives. The goals of effective accounts receivable management include:

1. Optimization of billing and payments processing.
2. A high collection rate while maintaining good business relationships with clients.
3. Remove bad debt risk from your records.

How do you improve accounts receivable management?

Invest in Electronic and Online Payments

Paper documents, invoices, mail, and checks are a traditional way of processing accounts receivable. In some cases, these are still necessary documents to keep; however, you should also consider investing in electronic and online modes of payment. An electronic invoicing system makes your team’s job of processing accounts receivable and notifying clients about their due dates simpler and easier. An electronic system also makes it more convenient for your clients to pay. The system records transactions that enable you to collect financial information efficiently. An automated system eliminates mistakes of people that lack the expertise or experience to process invoices.

Institute a Credit Policy

Providing clients with a line of credit is an incentive for them to do business with your company. However, not all clients are qualified for credit. Establish a clear policy and a list of qualifications before a client can avail themselves of credit. Consider giving clients that consistently pay on time or earlier credit. This improves your business relationship with them and keeps them satisfied with your services. Identify which clients are always late and determine if you would still want to keep them. Communicate your credit policy to your clients through various platforms such as emails, over the phone, notices, or social media.

Propose Discounts for Early Payments

One of the best practices in accounts receivable management is offering discounts or other incentives for clients and customers that pay early. You can set a deadline for those that want to avail the discount. For example, notify clients they can get 5% off their invoice if they pay it within the next ten days. You can offer better terms and conditions instead of a discount or a bigger line of credit for consistent early payments. These benefits might encourage your clients to pay earlier than their due date because of the possible savings they can get.

Establish, Implement, and Communicate Billing Procedures

Create and follow a clear and consistent billing process to improve accounts receivable management. This provides your team with a guideline they can follow when they process your company’s accounts receivable. Make sure to include the following when you establish billing procedures:

1. Date of invoice.
2. Details of the invoice such as client information, address, contact details, and others.
3. Processes for keeping records.
4. Review of accounts receivable processes and follow-ups.
5. Process for collecting overdue invoices.
6. Billing periods.

Disseminate your billing procedures to your team that handles accounts receivable. This puts everyone on the same page and improves the efficiency of the process.

Prepare a Plan for Late Payments

You’ll have several clients that will pay on time; however, some might be late when it comes to payments. Establish procedures and plans for delinquent clients. For example, implement a set number of days before an employee to contact a client that has yet to pay the invoice you sent them. This can be the day after its due date or a week after. The protocol can be a simple email notification or a phone call. Communicate your policies regarding lateness or non-payments.

Determine Processes for Handling Disputes

A dispute with clients might arise for a variety of reasons. You should prepare your accounting team on how to respond to such situations. Create a guideline and policy on how to reply to questions, actions they need to take, and who to escalate the dispute to when the need arises.

Be Proactive in Collection

When you establish clear credit policies and collection procedures, you can take a proactive approach. Automation makes this easier for your team to contact clients when their due dates are near. You can schedule notices for late payments or when an invoice is due using an automated messaging feature. Include details like how a client can pay immediately and the remaining balance. Allow them to settle their balance online. You can also use other methods for following up such as a phone call, email, or direct message.

Review Pending Payments

Keep your accounts receivable team updated about past-due payments through regular meetings or simple emails and messages. This enables them to monitor which clients they need to notify. It also allows them to manage cash flow and resources while waiting for client payments.

Keep Customer Information Updated

You’ll be unable to send accurate invoices for collection if you don’t update the details of your clients and customers. Accurate contact information, email, office addresses, contact persons, and other pertinent details allow you to monitor due dates and easily notify clients if their invoices are overdue. Incorrect information might lead to delays in payments because a client might have changed their office address and/or phone number. You’ll improve your financial data management with updated client information.

Improve accounts receivable management when you implement the above-mentioned best practices. Doing so enables you to track payments and identify which clients are often delinquent and which ones you can incentivize with discounts and better payment terms.In case you need assistance, we at Manila Bookkeepers can be your accounting and bookkeeping business partners.

We are an accounting company in the Philippines that can assist you with processing your accounts receivable or other accounting related tasks. Our team of experts can provide you with first-rate services that meet your requirements and within the deadline agreed upon. We can keep your accounting books and records updated so that you can use them for business decisions. We use first-rate and cloud-based accounting software to deliver quality output.