Accounting
5 Best Practices For Accounts Receivable Management
Account receivable management is a daily chore for many controllers and accounting professionals. However, because collecting outstanding receivables contributes significantly to their operation’s overall financial well-being, it’s one they can’t ignore.
Effective accounts receivable (A/R) management requires ongoing attention and knowledge of the best practices, whether you manage AR for a small business or a large corporation.
Below, we’ve outlined five key areas to consider when managing your organization’s accounts receivable process to maximize profitability while creating an efficient system to maintain customer relationships.
What is Accounts Receivable Management?
Accounts receivable management is the process of monitoring and managing customer payments. It involves tracking customer invoices, collecting outstanding payments, reconciling accounts, and resolving any payment disputes to avoid having outstanding invoices become bad debt.
A/R management is essential for any organization that sells on credit because it:
- Helps to ensure that the company collects the money owed to it
- Maintains a healthy cash flow
- Helps to maintain customer satisfaction
- Minimizes errors
- Allows the company to address any discrepancies or disputes right away
- Ensures the company’s financial statements are accurate
Improving Accounts Receivable Management
From tracking customer invoices and collecting payments to resolving disputes, effective A/R management helps ensure that a company’s finances are in order and customers pay on time.
By following these tips and strategies, you can maximize profitability while also creating an efficient system to maintain customer relationships. The following list outlines some of the best practices for account receivable management.
1. Establish Payment Terms
One of the most critical steps in managing accounts receivable is establishing payment terms with your customers. Payment terms should be clearly communicated to customers and documented in writing before they make a purchase.
Payment terms include the payment due date, any discounts available for early payments, and any late fees, interest or other penalties that you’ll assess on late payments.
2. Monitor Invoices
Once you’ve established payment terms, it’s crucial to monitor invoices to ensure customers are paying on time. You can do this manually, but most companies with more than a handful of customers use accounting software that tracks when invoices are sent, when payments are due and streamlines matching customer payments to outstanding invoices.
3. Enforce Payment Policies
To ensure customers are paying on time, it’s important to follow up with customers on their outstanding balances.
Different companies have different ways of handling payment reminders. For example, some send monthly statements detailing each customer’s outstanding balance. Some send automated reminders a few days before the payment is due, and some send follow-up emails or make phone calls to customers as soon as their payment becomes past due.
You may even need to turn delinquent accounts to a collection agency in extreme cases.
Staying on top of those outstanding payments and following up with customers on a timely basis helps enforce payment policies by letting customers know that you take collection seriously.
4. Resolve Payment Disputes Early
When dealing with customer payments, it’s important to be proactive about resolving disputes. If a customer disputes their balance, address the issue right away.
This may involve researching the original purchase and payment terms, checking to see whether a payment has been misapplied, or having a conversation with the customer to uncover if they’re disputing the invoice because they’re unhappy with the product or service you provided.
When you handle disputes professionally and promptly, you can usually find a resolution that both parties can agree on.
5. Offer Payment Options
Finally, it’s important to provide your customers with a variety of convenient payment options. This helps make it easier for customers to pay their invoices and can reduce the time it takes them to complete payments.
Standard payment options include debit and credit cards, checks, and third-party payment platforms like PayPal. Your accounting software may also allow you to accept ACH payments.
How Can FloQast Help You Manage Your Accounts Receivables?
FloQast is a provider of accounting workflow automation software, and we recently released FloQast Ops, a new workflow management solution that helps companies address upstream financial functions, including accounts receivable.
The cloud-based platform allows you to use pre-defined templates or create new, custom workflows that help you gain visibility into your accounts receivable management processes, seamlessly collaborate with other team members, automate many manual recurring tasks, and centralize documentation to ensure your organization is always audit-ready.
With FloQast’s greater visibility into the accounts receivable process, your team can better manage customer relationships and maintain a healthy cash flow and working capital by ensuring payments are made on time.
Additionally, FloQast’s AutoRec Matching can help automate the accounts receivable reconciliation and speed up the month-end close, saving your team a significant amount of time by matching thousands of transactions automatically.
Without proper accounts receivable management, staying on top of outstanding balances is difficult, and you risk tarnishing customer relationships. Don’t put your cash flow and your company’s future at risk. Instead, take the time to implement accounts receivable best practices by establishing and enforcing payment terms, staying on top of outstanding balances, offering convenient payment options, and resolving any disputes promptly. This will help you keep those revenue dollars rolling in.
If you are ready to optimize your accounts receivable process, let us give you a free demo today and show you how FloQast can help you achieve accounting operational excellence.
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