Accounts receivable refers to any money that your customers owe your business for goods or services that have been delivered. Accounts receivable are created when a company allows a customer to purchase something on credit. Their future revenue appears on the balance sheet as an asset.
What is Good Accounts Receivable Management and Why is it Important?
The objectives of good accounts receivable management are to receive the funds that are owed as quickly as possible, maximize cash flow, and maintain good customer relations. AR management includes the processes for billing and invoicing, handling payments, client communications, internal communications, credit policies, and collections processes. Poor accounts receivable management contributes to lost revenue and poor business cash flow.
Good Accounts Receivable Management Practices
Here are some actions to take to achieve good accounts receivable management:
• Set and communicate clear billing processes. Those should include exact and consistent billing periods and invoicing dates, the information required on each invoice, defined recordkeeping procedures, specific documentation for each customer including billing details and payment details. Also, a regular review of AR records with specific follow-up.
• Use electronic billing and payment. That will help overcome potential human error, allow customers to pay more easily online, and allow the company and customers to easily track payments.
• Set specific credit and collection policies and procedures for overdue payments. This will help define who should have credit extended to them and guide appropriate follow-up when payments are overdue.
• Be proactive in collecting payments. Send out reminders before the due date and follow-up immediately after the due date to get prompt payment.
• Offer incentives for early payments to accelerate cash flow.
• Make it easier for customers to resolve issues by automating some customer communications.
• Involve all customer-facing teams in the accounts receivable process to ensure the best revenue outcomes.
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