Proper Accounts Receivable Management Tips

Many businesses handle accounts receivable management reactively — when a customer invoice is outstanding, a collections process kicks into gear. But addressing AR proactively at every stage of the process yields significantly better results for cash flow management.

When your business makes a sale, and the customer receives a product or service, an accounts receivable process should begin with a prompt, clear and correct invoice. Customers should be reminded to pay before the due date, their preferred payment method should be available to them and, if the invoice due date slips by, they should be consistently reminded with increasing urgency that their payment is past due.

While proactively managing AR sounds straightforward, it can be a challenge to manage every step of the process consistently, especially as your business grows. But when businesses focus exclusively on reactive solutions, such as chasing down late-paying customers after an invoice is due, they can inadvertently offend customers and damage relationships, as well as risk interruptions to healthy cash flow. Implementing at least some AR automation can help as well.

Simply sending out an invoice and hoping payment will come through by the due date printed on it allows significant room for error and lapses. Think of a proactive AR process like preventative medicine, or childproofing a home — allow fewer opportunities for risk, and your outcomes are almost certain to improve. Reminding customers with increasing urgency in the days leading up to the due date

For starters, it’s critical to update customer contact lists and ensure you are reaching the right person, at the right phone number and email address, so invoices aren’t being shuffled around your customers’ offices. Stating credit terms clearly in advance also starts the process off on the right foot, and assessing and monitoring customers’ credit risk helps inform which terms you extend, and to whom.

Download Now: Improving Accounts Receivables and Collections for Small and Mid-Sized Businesses

Tips for reminding customers about invoices

Remind customers about outstanding invoices early and often — well before their due dates. Reminder campaigns can be warm and friendly, creating an opportunity to connect with customers and deepening your relationship with them. Each reminder should contain a direct link to make a simple, easy payment. In their regular, day-to-day lives, your customers have become accustomed to easily navigated payment portals that allow for instant payment with a confirmation — your business can and ought to operate at a similar standard when it comes to accepting payment on invoices.

While email templates improve efficiency, you can create an array of templates to suit different types of customers, whether small or large businesses or prompt or late payers.

Remember that internal communication is as critical as communication with customers. Ensure that all members of your team, from sales to accounting, have access to a log showing when and how the business has contacted customers to successfully nurture relationships.

Create a customer relationship management system for AR

Customer relationship management systems tend to have a sales focus — but it’s equally important to manage customer relationships throughout the AR process. Maintaining accurate contact details and history of communications — plus the current state of collections by invoice — is crucial to a smooth collections process. Keep contact records in one place that’s accessible to multiple members of your team so they can reference dates, outcomes and plot follow-up steps.

Consider expanding payment options

While paper checks flurry back and forth through the mail, they are an outdated payment method that many — if not most — customers would rather avoid. Broaden the range of payment methods your business will accept to make it simpler for customers to pay you with a ACH/wire transfer or credit card. Empower your customers to make pay invoices by ACH or card online at their convenience, and, again, include links to a payment portal in every communication you have with them. Why allow any hurdles to payment?

Discounts for early payment can prompt typically late-paying customers to pay on time.

The power of prediction

Analysis of customer payments is another part of proactive accounts receivable management. Parsing your own historical data and understanding your customers’ seasonal trends and other motivators allows you to gain insight into when they are likely to pay, how and how much — and use that knowledge to better understand your own cash flow. Your General Ledger and bank statements contain a wealth of information that often goes underutilized by businesses.

Why should I proactively manage my AR?

The effort involved in taking a proactive stance on AR is notable — but worthwhile. Understanding your customers, keeping both them and your colleagues in the loop on account standings, and being able to predict when payments will come in strengthens your reputation and relationships and gives you a better grasp on your inflows so you can plan spending or other aspects of cash flow management appropriately. It lowers your risk of nonpayment and increases the likelihood that you will be paid on time.

For more detailed information on managing accounts receivable, download our ebook.

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