No other accounting function has as much sway on the business cash flow and bottom line as Accounts Receivable. Being the lifeblood of a business in terms of revenue Accounts Receivable is the critical aspect of business accounting that needs to be efficiently managed for smooth business operations.
However, the majority of the businesses face collection inefficiencies which sow the seeds of cash flow problems. Start-ups or small businesses may make do with manual on the fly Accounts Receivable workflows. But as they grow, the complexity of AR grows by leaps and without a standard AR plan and business is bound to suffer cash flow problems – the leading cause for failure for businesses around the globe.
Accounts Receivable tips that businesses can adopt to get their clients to pay on time:
Getting the clients to pay on time and making it possible consistently over time is the most important aspect of a successful business. The only way for businesses to make this possible is to have a standard Accounts Receivable plan with a set of best practices.
While every business is different, there are a few foundational aspects of AR that every new business pick and adopt in their AR system to ensure consistently better collections. As a remote accounting firm that has worked with hundreds of businesses over the last decade, Outsourced Bookkeeping has identified the foundational AR practices that consistently gave better results for small and medium businesses and in this blog, we list them for you. Read on to know:
1. Develop the right KPIs: The first step in developing a standard AR plan is to nail the right KPIs that help you monitor and improve your AR process. Though most businesses are happy to receive the payment, KPIs are key to ensuring the right well-directed optimizations.
Analysing historical data of Accounts Receivable is how businesses can frame KPIs that shed light on the areas of improvement. Reduction in days sales outstanding (DSO), Reduction in bad debts, Reduction in outstanding receivables, Reduction in average days to pay are some of the key KPIs used by Outsourced Booking to measure the performance and make improvements.
In addition to them, Reduction in dispute resolution time & invoice disputes, Decreased cost of credit, Average time from slaves to invoice delivery are other KPIs businesses can focus on for optimizations.
2. Create a standard messaging model: The lack of a standard and efficient messaging model is the most common cause of suboptimal collection procedures and what makes it key is that this outbound messaging is also the simplest to improve. Having the right call scripts, collection letters, document templates, documented answers to frequently asked questions and other standard messaging tools is half the work done when it comes to this aspect of the business. The other half entails systematic access to the CRM tools that documents dive access to the flow of information – emails, call conversation, account notes and other key information for correspondence.
3. Centralize the data & communications: Centralization of data and communication is a new strategy by any stretch, but businesses often do not leverage it as much when it comes to Accounts Receivable. Having a CRM that centralizes data and communications is a big plus for the credit and collection management team. One central location for all the account data improves the messaging and collection procedures with the entire team holistically working towards the target. This centralized system also makes audits and optimization easy while securing sensitive financial information.
4. Standard credit approval procedures: The side effect of aggressively pursuing sales goals is the prevalence of lax credit evaluation policies which manifest in delayed receivables and write-offs. Any business that is aiming for consistently quick AR collections starts with choosing the right clients and crafting the right credit approval procedures.
Businesses need to evaluate current market realities and set clear guidelines that suggest right case to grant credit, override credit limits or place accounts on hold. Every business is different and credit policies must reflect their industry, volume of business and risk profile. Background verifications, credit history checks are to be mandatory for clients in large volumes. Similarly one can resort to scorecard models to assess creditworthiness for clients with smaller volumes. That said have standard credit approval process and review it regularly based on market conditions, and the niche of the industry.
That said, the above four tips form only the surface of foundational Accounts Receivable tips our Accounts Receivable experts at Outsourced Bookkeeping had to offer. In our next blog, we deep down into other 6 tips that we think we help you lay a strong Accounts Receivable foundation that lead to improved collections and cash flow. That said, is you are a business that is short of the required manpower or expertise to adopt the above best practice but aims to accrue benefits of effective Accounts Receivable process then you can consider outsourcing Accounts Receivable to our experts at Outsourced Bookkeeping here: https://outsourcedbookeeping.com/
