With effective accounts receivable management processes in place, you ensure that your company has reliable, consistent cash flow for planning purposes and the overall health of your business. But how do you get there? What are accounts receivable best practices, and what are the most common mistakes to avoid in accounts receivable management?
What Is Accounts Receivable Management?
Accounts receivable refers to the outstanding customer payments owed to your business for products or services provided and accounts receivable management is the practice of ensuring that your organization receives these payments promptly and reliably. Standard accounts receivable management processes include billing and invoicing, communicating with customers, and administering collections and credit policies.
Why is figuring out how to improve accounts receivable management such a critical focus area for so many organizations?
Because when it’s done right, a business receives timely payments, establishes a predictable cash flow, maintains positive relationships with its customers, and keeps accounting staff happy and productive. But if accounts receivable is poorly managed, a company’s revenue, liquidity, and employee and customer satisfaction are all at risk.
Accounts Receivable Best Practices
Many accounts receivable best practices sound like basic common sense, but today’s overburdened accounting teams frequently lack the time and resources to fully review their processes and consider different approaches and techniques. Our best practices recommendations include:
- Replacing manual processes with automated accounts receivable workflows. Manual accounts receivable processes are slow, hard to track, and prone to error. By implementing accounts receivable software that allows customers to pay online, you’ll accelerate your operations, alleviate the administrative burden on accounting staff, and automatically track all invoicing and payment activities.
- Establishing clear and consistent billing policies and practices. Whether you employ an electronic accounts receivable solution or continue to perform processes manually, it’s important to clearly define and make sure that all accounting staff understand your procedures. This includes standard payment terms, recordkeeping, and the collection process.
- Pursuing payments proactively. Having consistent accounts receivable practices in place makes it easier to be proactive about payment collection. You can set up a process that will prompt you to follow up with a customer as soon a payment becomes overdue or, if you have a digital accounts receivable solution in place, simply configure your platform to contact a client on the first day a payment is late and send regular follow-up communications until you receive payment.
- Helping customers pay quickly and easily. If your business regularly struggles with a high rate of overdue accounts, your customers may be having trouble accessing and easily submitting payments for your invoices. With a digital platform that sends clear, easy-to-access invoicing information and allows customers to pay online, you can eliminate these issues.
- Incorporating all relevant teams in the process. To improve efficiency and avoid redundant work, make sure that all client-facing teams—sales groups, for example—are involved in your accounts receivable practice. Implementing a centralized platform and providing all stakeholders with access is the most effective way to bring all parties together for collaboration in the process.
Common Accounts Receivable Mistakes to Avoid
Correcting the five common mistakes below will help your accounting team reduce accounts receivable:
- Invoices with errors or missing information. Even a small invoicing error can be costly. For example, if you forget to include your late payment policy on an invoice, you’ll be unable to collect a late fee if the customer misses your payment deadline. To minimize error, companies are turning to accounts receivable platforms with AI capabilities to verify all information before sending invoices to customers.
- Poor communication among team members. If a member of your accounting staff follows up with a customer about an overdue payment but fails to inform the rest of the group, another team member might also contact that customer. As a result, your company appears disorganized, and your customer may not be happy about the repeated follow-up.
- Failure to follow up on overdue invoices. In accounts receivable management, figuring out how to follow up on invoices and get paid faster is the name of the game. Yet, many overburdened accounting teams simply lack the resources and systems to do so effectively.
- A lack of sufficient payment methods. Companies need to make it easy for customers to pay invoices with their preferred methods, which are increasingly digital. By determining how to give your customers the digital billing experience they’re looking for, you’re taking an essential step toward fast, reliable payments.
- Errors in applying payments to invoices. When companies process bulk invoices quickly, applying a customer payment to an incorrect invoice is, unfortunately, a common error. To address the issue, businesses can implement an accounts receivable platform with tools for properly applying incoming payments to outstanding invoices.
Invoiced Can Supercharge Your Accounts Receivable Management
Invoiced offers cloud-based accounts receivable management solutions that are helping businesses across industries get paid faster. In fact, when companies automate their accounts receivable processes, they reduce the service-to-payment cycle by up to 80 percent.
Want to learn more about automating your accounts receivable practice from end to end? Read The Ultimate Guide to Automating the Accounts Receivable Process for detailed insight into how and why to automate each component.