5-Min Guide to Best Practices in Accounts Receivable Management

Poor management of accounts receivables refers to the various operation and financial issues of business that impact the receivables management efficiency . Some of the common drivers are late invoices, higher DSO, data discrepancies, inadequate credit checks, time consuming manual processes, etc. On a business’s balance sheet, Accounts Receivable is recorded as a current asset. These amounts are considered due in the short term, so it’s assumed that customers will be paying soon. As the goods or services have already been provided under specific terms, the debts in Accounts Receivable are legally binding. Since the funds are legally due to the business and can be used as collateral for loans, the money owed in Accounts Receivable is considered a liquid asset.

Set Clear Payment Terms

Invoice errors, such as wrong amounts or due dates, can cause payment delays and confusion. Even small mistakes lead customers to question charges and sometimes hold back payments. Fixing these issues can be frustrating for both the AR team and customers. This information lets them set aside funds to expand products or scale operations, confident they will have the cash they need.

With the right processes and technology however, companies can accelerate customer payments by more intelligently targeting dunning. Building an effective accounts receivable management is critical to maintaining a positive cash why data could be your newest revenue stream flow and fostering a successful customer relationship. It involves a range of tasks like onboarding new customers, evaluating their creditworthiness, issuing invoices on time, and timely collection of payments. Maintaining positive cash flow is always important, but even more in times of economic volatility, company growth, or unexpected events.

One of the most how to find a manufacturing facility important and urgent steps to streamline receivables management is to automate the process. They require significant manual effort that leads to errors like inaccurate data entry, delayed invoicing, miscommunications, late payments, and ineffective follow-up. Individual phone and email outreach or physically mailing paper checks and invoices can grind collection processes to a halt.

Build invoice template and send reminders at regular intervals

Here are some accounts receivable management techniques that will help nonprofit bookkeeping and accounting for dummies cheat sheet you address each element of AR and gain comprehensive control over the process. Good cash reconciliation can also improve a business’s customer relations. In the event of a dispute, having accurate records can back up your claims and help resolve disputes quickly and effectively. The following metrics are effective indicators for assessing how well a business runs its Accounts Receivable process. Tracking these metrics can help companies find areas to improve their assessment and collection processes. Set up a system of late payment reminders on a set schedule—for example, reminders for 1 week, 2 weeks, and 3 weeks past due.

1. Accounts receivable keep a record of all pending invoices a company has with its customers.
2. Unfortunately, it can be difficult to anticipate payment issues, non-payments or late payments.
3. The cash application process—a core tenet of accounts receivable management—is notoriously difficult, so most AR teams have a lot of room for improvement.
4. This helps assess the efficacy of your Accounts Receivable process and provides an overview of your revenues for the month.

Inefficiencies due to manual processes

Set and communicate clear expectations, especially around payment terms. Put them in writing and make them easily available to team members and customers. Consistency matters—customers are more likely to pay on time when invoices follow a predictable schedule. When customers receive regular and accurate invoices, it is easier to plan payments, making delays less likely. Payment reminders or handling disputes can create tension if not managed well. A balance between prompt collections and maintaining good relationships is essential.

The Ultimate Truth about Automating Collections and Dunning in Mid-Sized Businesses

Poor communication can manifest in several ways, such as sending invoices that lack proper documentation or go to the wrong contact. To AR teams, it can look like a check that was “lost in the mail,” unexplained short payments, or payments sent with incomplete remittance information. Clear credit terms, consistent invoicing, and the use of data insights make AR processes reliable and efficient.

Manual errors or missed payments become common when there are too many invoices, causing delays. It’s an asset because it has value, and it’s a current asset because it’s expected to be collected within the next 12 months. Accounts receivable is the money that customers owe a business for goods or services that have been delivered but not yet paid for. Because they represent funds owed to the company (and that are likely to be received), they are booked as an asset. HighRadius offers powerful, cloud-based Order to Cash software to automate and streamline financial operations.