The Ultimate Guide To Improving Your Accounts Receivables

Urmi Shah

Urmi Shah

Senior editor

Parul Saxena

Chief editor

Last updated: August 5, 2021

According to a recent report, 2/3rd of the companies find managing their cash flow challenging! Is your company too facing the same challenge despite steady sales and growth?

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Some business owners fail to realize the huge amount of cash trapped in their own balance sheet. On average, companies write off 1.5% of their receivables as bad debt. Freeing it up does much more than just delivering improved operational efficiency. It also gives companies the added liquidity they need to fund growth, reduce debt levels, lower costs, maximize shareholder returns and even outperform their competitors. In the end, it is all about managing your accounts payable and receivable effectively.

It is better to receive than to lend.

While there are numerous ways to free the cash, today, we will throw some light on accounts receivable assets. Stay with us to learn how it can affect your company.

Do you end up providing free financing to your customers for the sake of good numbers in sales? Simply put, do you extend payment dates, distribute discount codes and go above and beyond your payment terms to extend credit to your customers? We might have just found the problem here.

Though it doesn’t seem a big deal if your company needs to borrow money to meet its obligations due to late payments – we hate to break it to you, but your company could be incurring losses on the financial charges alone!

The first step to the payout is to make peace with the fact that there is a need for new practices.

A practice where your sales and finance department are collaborating successfully, and you develop a middle ground for payment terms that is a win-win for both; customers and your business.

4 Business Activities To Focus On To Improve Accounting Receivable Processing

Optimizing accounts receivable can seem overwhelming at the moment, but a systematic approach can make it easy for you. We have listed activities to optimize – on which you’ll see a dramatic improvement in your accounts receivable assets.

  • Maintaining accurate customer data

 Unifying and having a single point of source for all the data on your customer accounts is the most primary and crucial part of maintaining your accounting receivables.

Properly managed customer data helps you easily reach out to your customers along with regular auditing of their accounts. For instance, you’ll have all the necessary at your disposal and notify your customers about their payments through various channels. Or even quickly check for anomalies like unusual or inappropriate payment terms, credit limits, discounts, and the like. Cloud accounting software is one of the solutions you can implement that takes your business to the next level. 

Ensure that all the changes in the customer information are regularly updated, and the access is restricted to the concerned management team.

  • Establish a credit approval process

As we mentioned earlier, businesses often slip into the vicious circle of providing extended credit to improve their sales. Extending credit is fine, but not at the cost of your own losses. 

Hence a clear and concise credit process is crucial to saving your company for the financial payouts due to extended credits. A process that includes instructions regarding how to evaluate and override credit limits, when to place accounts on hold, and how the application process works is a must for every business. 

  • Establish an effective billing process

A streamlined process to avoid any errors in pricing, units of measure and delayed invoices is essential to receive timely payments. Automating billing is one of the most effective ways to prevent these errors.

You can always implement a manual process for exceptional processes, but as far as it comes to automating the monotonous task, technology does it the best. It helps increase efficiency, transparency, minimizes errors and, frees up your human resources for what they do the best.

  • Optimize the collection process

Streamlining your collection processes makes it much easier for you to collect timely payments. A defined process for negotiating payment terms ensures that you do not authorize any payment delay that harms the company in the long run.

While these are the most primary activities to simplify and organize your accounts receivables on the balance sheet, here are some tips to take it a step further.

5 Tips To Improve Your Accounts Receivable

Accounts Receivable

Source: https://www.rccmn.com/blog/wp-content/uploads/2018/05/Improvement-700×510.jpg

Establish strong client relationships

Happy clients are more than happy to pay for the products/services they availed. They are just a personal touch away from it. Go ahead, write that letter, make that phone call and you are all set.

Invoice often

People are more inclined towards paying small amounts multiple times rather than paying a lump sum at one time. So go ahead and experiment with your invoicing schedule, see what your client responds to the best.

Include payment terms

Providing a timeline gives people a sense of urgency. As a result, they usually act upon it more. Above that, you can also encourage early payments with some loyalty points and mention a late payment penalty to avoid it. Offering a payment plan if the bill is enormous is also a good idea to induce action.

Make payment easy

Provide as many options possible for payments. Offering multiple payment options makes it easier for clients to adopt the payment option their company prefers. And that means they’ll be far more likely to pay your invoices on time.

93% of businesses experience late payments from customers.

Simplify your billing structure

A fixed billing option is the best example of a simplified billing structure. A structured payment where you offer the same monthly service for a fixed price reduces the panic of calculating and checking services for the client. Furthermore, you can also implement an automatic payment, where a certain amount is withdrawn from your client’s account every month.

Remember, taking steps to evaluate, manage and optimize your accounting receivables constantly is the key to a healthy cash flow. Although considering everything at once can be challenging, take a step back, look at the bigger picture, and pick one aspect at a time. Also check: Global Business Accounting Software Analysis 2017-’24

Got some questions? Comment away. We’d be more than happy to help.

Urmi Shah
Urmi specializes in writing long-form actionable insights for the SaaS domain. She has been creating content that translates the brand stories and their expertise for 3+ years. Her content empowers businesses to build and engage with communities and develop better visibility. When not scribbling, she explores the new tools and technologies in the industry.

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