Accounts receivable (AR) is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. Simply put, the business has sold a product to a customer, but that customer has not honored the invoice yet.
Managing accounts receivable properly has a tremendous impact on the cash flow and revenue of a business. Done right, these can mean timely payment, higher liquidity, and good customer relationships. Done wrong, they may mean lost revenue, wasted staff time and poor business cash flow.
Accounts receivable management, therefore, is an organized system of processes you have put in place to keep track of the money in your business, like:
- Payment processing
- Billing & invoicing
- Internal communications
- Communication with customers
- Collection processes and credit policy
The goal of AR management is to optimize the payment, billings, and the collection process to reduce the time it takes to get your invoice paid.
Here are some of the best practices businesses must follow to effectively manage their accounts receivables:
Use Digital Billing & Payment
Get rid of paper & postal bills and paper cheques as they can be lost and take a lot of time to track. Switch to an electronic invoicing system that enables your customers to make payments digitally.
By integrating the invoicing system with virtual payment processing, your customers can easily click on their bill to make the payment and the system will record it for you.
Outline Clear Procedures
Always approach the billing process with utmost consistency and clarity. Outline a clear process, document it and everyone in the company follows it. The process should include:
- Billing period and invoice date
- Key information to include in invoice
- Recordkeeping system
- Regular assessment & follow-up
- Collection procedures for due invoices
- Billing contact details
- Unique details or steps (if any)
- Payment details and customer notes
Automate Payment Reminders
Overdue payments by customers lead to a lot of time and effort being taken to follow-up with them for the collection. Save time and enable consistency in the payment process by automating reminders to customers when the payment is due.
You can opt for a business intelligence platform like ZikZuk BFM, which automates payment reminders through SMS, email, and WhatsApp.
Set Credit & Collection Policies
You might or might not want to extend credit to customers. If you want to, you must set clear policies beforehand and avoid giving off too much credit to some customers and make it clear to anyone in your organization to ascertain where a request by a customer to extend credit must be accepted.
Clear collection policies ensure that you are ready to approach any overdue customers and streamline your collection process. It should include regular reviews of accounts receivable and the measures to be taken to follow up with your customer on that.
Using business intelligence software can help streamline the accounts receivable process and automate manual & tedious tasks that take up a lot of time and are prone to errors.
ZikZuk, an SME Neobank, offers Business Finance Manager (BFM) which provides an accounts receivable dashboard with prioritization and ageing analysis of your customers and other data from your Tally on mobile phone.
Moreover, BFM automates sending payment reminders to your customers through mediums like SMS, email, and WhatsApp which helps you to collect payments faster.
Apart from this, BFM also enables credit control, through which you can easily assign credit limits and credit period for your customers.