Maintaining a positive cash flow is often considered to be one of the most critical functions for a finance team. While most business owners tend to invest their time & resources on business expansion, accountants are expected to convert the company’s credit into actual revenue. In such a high-pressure scenario, an inefficient accounts receivable management system can lead to piling up of potential bad debts.
In fact, according to a research conducted by BACS in 2019, UK SMEs faced a debt burden of £23.4 billion, with 54% of the surveyed companies experiencing overdue payments. On the other hand, companies that prioritise AR and address cash flows issues proactively have been proven to experience better growth rates. Therefore, creating an effective AR strategy by process optimisation & best practices implementation can contribute significantly to long-term business success.
Let us look at 10 simple accounts receivable management tips & tricks that can help speed up business collections:
Implement a proactive collection system
One of the most common AR mistakes committed by finance teams is failing to prioritise billing. Make sure your team has a clear idea of the importance of cash flow to your business. Creating a system that generates bills as soon as the product/service is provided improves the chances of customers making timely payments.
Generate simple, clear invoices
Your customers are more likely to delay payments when the invoices received are either too generic or too complex in nature. Ensure that the invoices your company generates clearly mention the final amount, with a clear breakdown of the products or services provided. In cases of monthly services, implementing a fixed billing arrangement can also translate to regular, timely payments.
Set transparent payment terms
Clear communication can often play a key role in determining the timeliness of a payment. Be transparent about your payment expectations and make sure that the customer is aware of the same from the very beginning. Setting clear timelines and including late payment charges on the invoices itself can further help avoid last minute confusion.
Make payments easier
Giving your customers a variety of payment options to choose from is one of the easiest ways to improve their overall experience and increase the likelihood of timely collections. Offering modern payment methods like Electronic Funds Transfer (EFT), PayPal & credit cards in addition to the traditional cash & cheques can make it easier for customers to complete their payments on time.
Organise your invoice follow-ups
Following up is the most sensitive and critical part of the entire accounts receivable process. Many finance teams end up committing the mistake of sending invoices and expecting to receive payments automatically – without considering the fact that the customer is also likely to miss a payment deadline. To avoid such scenarios, implement a solid follow-up system that sends out periodical reminders that are firm yet polite & professional in nature.
Use software for AR tracking
Using an outdated or redundant tool such as Excel for your accounts receivable management can slow down the entire function, making your business prone to delayed payments. Cloud-based accounting software like Xero & QuickBooks Online can take your AR to the next level, giving you 24/7 access to real-time financial data. In addition, such software also offer the flexibility of incorporating functions like time tracking and automated recurring invoices & follow-up reminders.
Maintain strong client relationships
Remember, a customer that feels happy working with you is always more likely to make a timely payment as compared to one that isn’t. Try and maintain a cordial yet professional relationship with your customers by communicating with them regularly – a small phone call or an email might not yield any immediate results, but can go a long way in ensuring a strong business relationship.
Offer early payment discounts
While many organisations tend to get apprehensive about early payment discounts, offering reduced rates is actually one of the best ways to keep your cash flow high. Companies with a healthy cash flow usually offer a 2-5% discount for payments made within 10-15 days. Identify the amount that best suits your business scenario and make it a point to highlight the early payment terms on your invoices.
Reconcile your accounts frequently
In spite of having a solid AR strategy, many organisations fail to keep their accounts receivable updated, which further impacts tracking of business turnover. As a best practice, it is advised for businesses to reconcile their accounts frequently and clear off the receivables list, as soon as the payment is received from a customer.
Work with a dedicated team of collection experts
While all the above-mentioned tips can go a long way in adding agility to your AR function, the bitter truth remains that collections are very time-consuming in nature and can take the focus away from core business activities. As a result, an increasing number of finance leaders are now taking the outsourcing route to introduce a team of dedicated, skilled AR experts into their business. Partnering with an experienced accounts receivable management service provider can turn around your company’s cash flow, help build stronger customer relationships & reduce operating costs.
The QX Solution
Since its inception in 2003, QX has continued to provide highly effective accounts receivable management services to businesses across industries. Our unique people-process-platform approach allows us to understand our clients’ specific organisational needs, identify the right solutions and ensure seamless migration to revamped systems. Contact us to know more about our outsourced accounts receivable services and transform your company’s receivables.
Originally published Feb 23, 2021 02:02:24, updated Dec 08 2021