Best practices to improve your accounts receivable process

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    Debt collections

    10 best practices to improve your accounts receivable process

    We’ve all had that one friend who borrows money and assures us that he’s going to pay as soon as the cash from his car comes through. 

    Three years later…

    While this is incredibly frustrating in our personal lives, this exact scenario in business can be crippling. 

    These outstanding amounts in business are known as Accounts Receivable. They can quickly get out of hand if not managed correctly. 

    Small businesses, especially, need to keep a close eye on their cash flow which depends heavily on how quickly outstanding monies are collected. 

    Does your accounts receivable process need an overhaul? 

    Do you have one that works for you?

    We’ve collated the not-so-secret information on what smart companies do to manage this critical accounting area. 

    Accounts receivable best practices

    Accounts Receivable (AR) are an IOU from your customers or other companies you do business with. 

    AR indicates that they have received the product or service they needed, and they owe you money for it. We would pay for stuff in an ideal world as we needed it, but this isn’t always feasible, especially when dealing with large amounts. 

    Setting up your systems efficiently and sticking to them will go a long way towards building a stable business. 

    1. Establish good credit practices

    Establishing good credit practices upfront will save you a dozen migraine-inducing phone calls to customers who “didn’t know” who, when or what to pay.

    A solid credit application process is the critical first step. 

    A credit application process serves several purposes:

    • It weeds out applicants who are not creditworthy.
    • It states your terms and conditions clearly, noting each party’s responsibilities and obligations.
    • It highlights the individual’s interest rate and credit limits.
    • It’s a legal requirement for everyone who enters into a credit agreement.

    Smaller businesses or those just starting may be tempted to offer credit to people or companies that aren’t of the highest calibre. 

    A sale is a sale, after all, right?

    Actually no. A sale is only worth something when the money is in your account. Before that, it’s simply a problem in the wrong accounting column. 

    So, choose whom you wish to extend credit to carefully, and then ensure that they have all the information that they need for you to manage their account well. 

    2. Solid customer database

    Your credit application process should link seamlessly with your customer database and populate it with current, accurate records. 

    Incorrect contact details lead to missing invoices and late payments. Incorrect credit limits or erroneous discounts can be tracked and rectified quickly. 

    Incorrect allocation of payments results in angry customers and embarrassed staff.

    In addition to streamlining your accounting procedures, a robust customer database can be used for effective marketing, product surveys, customer analysis, and so much more.

    In addition to streamlining your accounting procedures, a robust customer database can be used for effective marketing, product surveys, customer analysis, and so much more.

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    3. Invoicing customers

    Invoicing may sound like a no-brainer, but efficient invoicing is at the root of a good accounting process. 

    The sooner you send your invoices, the sooner you’ll get paid. Also, the more accurate and concise your invoices are, the less communication overhead you’ll have to endure from confused customers. 

    Therefore, whether you’re sending paper or electronic invoices, you must ensure that they are accurate, timely and have all the information the customer needs. Sending a copy of their invoices for the month along with a statement, details of their purchases if you have them, or any other associated documents does precisely this. 

    Some businesses use mobile services that can send personalized messages to their customer’s phones, offering them the ability to open, browse, and pay from that same device. Whatever you need to do to get that information to your customer – do that.

    Some businesses use mobile services that can send personalized messages to their customer’s phones, offering them the ability to open, browse, and pay from that same device.

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    4. Accurate tracking 

    Yes, Microsoft Excel is an excellent tool and has helped many businesses through those bleak start-up days. Is your business still using Excel to save and track payments?  

    If so, you probably want to stop doing that. 

    Excel is excellent and all, but it’s a manual process and an inefficient one. (Unless you’re a complete whizz and understand all the tools and formulas available.) Errors are easily made and difficult to find. Integration into complex systems may not be feasible. Data is not always easy to analyze. 

    The solution is an automated system. 

    Bear with us, though; we’ll get there shortly. 

    5. Strategic collection policy

    How is a collection policy different from simply invoicing your customers?

    A collection policy will kick in when your customers aren’t paying or when they are paying late. This policy should be highlighted in your credit application so that there are no surprised customers. 

    It also needs to be followed carefully.

    The point of a collection policy is to prevent late payments and subsequently resolve these matters amicably. 

    Perhaps there is a genuine and unexpected reason for late or non-payment that we need to consider. It happens. And wouldn’t you rather keep a customer than spend all that money trying to find another one?

    In-house collection teams will need a plan for contacting customers with overdue accounts. 

    For instance, they can send two follow-up emails and, failing any action, will make a weekly call to the customer with a respectful yet firm request for payment. After a set period and due warning, the account will be handed over to a collection agency.  

    You will decide the tone and process of your collections policy. Whatever it is, though, make sure it adheres to the legal guidelines respecting debt collection.

    6. Payment options

    Wherever possible, offer multiple payment options for faster payments. 

    There are more payment options available now than ever before, and it’s well worth simplifying this process for your customers. 

    We invite you to explore some of these and include them on your website, mobile communication, or emails. 

    Think of your online activity and which payment options you prefer, and why. Your customers will probably enjoy the same elements of speed, safety, or convenience. 

    7. Personalized service

    Your customer is so much more than an invoice number. 

    The person at the end of that email, just like you and I, appreciates good, personalized service. 

    For example, your communication should include their name, have a friendly tone, and contain all their correct details. 

    Thanking customers for payment is another unnecessary but kind thing to do. 

    Why not send a message to those who have an excellent payment record and tell them how awesome they are? 

    Perhaps throw in a slight discount if you can?

    One report highlights the importance of personalized service, saying, “80% of those who classify themselves as frequent shoppers say they only shop with brands who personalize their experience.”

    8. Analyze your accounts receivable.

    Off the back of the rather cunning plan to automate your Accounts Receivable systems comes another benefit. 

    Access to accurate and detailed data shows clearly where you are doing well and where adjustments need to be made. 

    Reports from accurate big data allow nothing to fall through the cracks. They will quickly give you the necessary information you need to minimize defaults, stop haemorrhaging capital into bad debts, and tighten up your cash flow.

    This is the perfect example of where knowledge is power. 

    9. Automate your systems

    There’s no doubt that manual systems in a growing business are not only less efficient than an automated system but can cost the company dearly in terms of staff time allocation, human error, and excessive overheads. 

    There’s no doubt that manual systems in a growing business are not only less efficient than an automated system but can cost the company dearly...

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    Just because your team can do a job, it doesn’t mean they should. Tedious manual data entry is a mind-numbing and depressing job. 

    There’s no way around it. Why not let the computers do the tedious work and free up your people to offer more and better customer service?

    Don’t believe us?

    Sage tells us, “The top reasons why accountants adopt new technology include to increase efficiency (64%), improve the quality of service (44%), and attract new clients (42%).” (Source)

    Automating low-value work means the high-value work can get started sooner. 

    10. Call in the professionals

    We live in an age where we don’t have to reinvent the wheel.

    Managed services, white label products, open-source software, and strategic partnerships allow the smallest businesses to compete on a global playing field. 

    If there is a company with knowledge of a system or process that you are battling with, and working with them will increase your bottom line, why not employ their services?

    It makes sense.

    Taking the headache out of your accounts receivable process

    If you’re reading this article, then you’re likely wondering how you can improve your accounts receivable process and get those outstanding monies in more efficiently.

    That’s great. It makes you a proactive businessperson and one that we would love to assist.

    Here at Chaser, we have made it our mission to ensure that our clients get paid faster and reduce their company debt. Our automated systems save you from chasing your tail when it comes to outstanding amounts. 

    So far, we’ve saved our customers over 9 million hours by automating AR tasks. What could you do with all this free time?

    What do you have to lose? 

     

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