Having specific, achievable, and relevant goals help to ensure that their accounts receivable departments are on track and working efficiently. Accounts receivable goals and objectives are essential for any business because they help ensure the company gets paid. Without these goals, tracking how much money is owed to the business and when it is expected to be paid would not be easy.
When setting accounts receivable goals, a few things should be considered. They should be achievable, measurable, and aligned with your business values. They should be time-based so you can track your progress efficiently and timely.
Companies and businesses need to set financial goals. Without goals, businesses lack direction and may find it challenging to achieve success. Setting accounts receivable goals can help companies to improve their cash flow and reduce issues.
What Is Meant By Accounts Receivable?
In business, accounts receivable refers to the money its customers owe to the company. This can be goods or services that are given but still need to be paid for. Accounts receivable are categorized as an asset because it concerns the money to be received.
Businesses can often improve their cash flow issues by managing their accounts receivable more efficiently. This means reducing the time for customers to pay for the respective invoices. It also means being proactive about collecting overdue payments.
There are several ways to achieve this, such as offering discounts for early payment or using software to automate invoicing and collection.
13 Common Goals of Accounts Receivable
Almost every business has accounts receivable, which is money that customers owe the company. Accounts receivable goals typically focus on three areas which are maximizing revenue, minimizing costs and improving customer relations.
To maximize revenue, businesses want to ensure sending invoices promptly and that payments are collected as soon as possible. To minimize costs, businesses need to avoid late payments and uncollectible debts. Improving customer relations can help achieve both of these goals by ensuring that customers are happy with the product or service and have a positive experience with the company.
Performance goals for accounts receivable differ from business to business, but the common goal is to improve the bottom line. By focusing on these three areas, businesses can make sure that they are doing everything possible to collect money owed and keep their customers satisfied.
Let’s take a look at some accounts receivable goals and objectives that you should adopt.
1. Ensure Timely Payment
Without a sound accounts receivable policy, businesses can quickly struggle to make ends meet. Firstly, you need to set up clear terms of payment with the customers from the start. This will help steer clear of any confusion or misunderstanding later on. Moreover, it is important to keep close track of invoices and follow up promptly with customers who have yet to pay. This will make sure that payments are received timely.
Apart from tracking invoices, it is important to consider offering discounts for early payment. This can be a powerful incentive for customers to settle their invoices quickly. In addition, it is helpful to provide multiple payment options. By following these tips, you can make certain that your business remains on sound financial footing by maintaining healthy accounts receivable practices.
2. Improve Cash Flow
In business, cash flow is the lifeblood. It's what keeps companies running and growing. Accounts receivable are one of the key drivers of cash flow, so it's essential to understand how to manage them effectively.
There are several ways to make your accounts receivable better. First, make sure you invoice promptly and accurately. Include all the essential information on your invoices, such as purchase order numbers and contact information for your customer's accounts payable department.
Next, follow up with your customers regularly. A quick phone call or email can remind them that an invoice is due and help move it along in the payment process. Finally, be willing to negotiate payment terms that work for you and your customer.
3. Reduce Bad Debt
Bad debt is inevitable when you are doing business, but there are ways to minimize it. By understanding what accounts receivable are and taking steps to encourage prompt payment, companies can reduce the amount of bad debt they carry.
To reduce bad debt, businesses should take several steps, including reviewing their credit policies, tightening their accounting procedures, and increasing customer communication.
A way to reduce bad debt is by extending credit only to customers with a good history of paying their bills on time. Businesses should review their credit policies to ensure they are not extending credit to high-risk customers. They should also tighten up their accounting procedures to ensure that invoices are sent out timely.
Finally, businesses should increase communication with customers to keep them informed about their account status and resolve any issues that may arise. These steps will help enterprises to reduce the amount of bad debt they incur. Companies can improve their cash flow and bottom line by reducing bad debt.
4. Maintain Accurate Records of Payments
Accounts receivable are the amount of money a company has from customers who still need to pay their invoices. Companies need to maintain accurate records of their accounts receivable to keep track of the money they are owed.
Accounts receivable can be a complex task for some businesses, especially if they have many customers or invoices. There are a few different ways that companies can keep track of their accounts receivable, such as using accounts receivable management software or hiring an outside firm to manage the records. Whichever method a company chooses, it must regularly update and review its records to ensure accuracy.
5. Reconcile Accounts Receivable with General Ledger
Reconciling accounts receivable with the general ledger is essential to keeping accurate financial records. By doing so, companies can ensure that they are getting their due payments for what they are owed and that their financial statements are accurate.
The reconciliation process involves comparing the accounts receivable balance with the general ledger to ensure transactions are correctly recorded. This process ensures that the accounts receivable figures are accurate and up-to-date. It is essential to resolve any discrepancies.
6. Investigate and Resolve Discrepancies
When a business provides a service or sells a product, it's common for the customer to delay payment. This is known as accounts receivable, and businesses often have to follow up with customers to receive payment.
However, sometimes there can be discrepancies between what the customer owes and what the business is owed. In these cases, businesses must address and take care of the discrepancy.
Businesses can look at their own records to see if any additional information could help clarify the situation. Finally, they can contact other companies or organizations with information about the customer in question.
7. Prepare Financial Statements
Preparing financial statements is an effective way to manage your business' finances. Doing so can measure progress and identify areas that need improvement.
Let us identify the three integral types of financial statements. Firstly, the balance sheet summarizes your assets and liabilities. It is then followed by an income statement that identifies the profitability over some time. Lastly, the cash flow statement records the cash flow of the business.
Preparing financial statements can be time-consuming, but it's worth it in the long run. By comprehending your numbers, you can make better-informed decisions that will assist your business in growing.
8. Assess Credit Risk
When assessing credit risk, companies often focus too much on the past and need more on the future. That's why it's essential to use a forward-looking approach when assessing credit risk. This means looking at factors such as a company's financial health, ability to generate cash flow, and overall business model.
So don't be afraid to take a fresh look at your accounts receivable process and ensure you're considering all the right factors when assessing credit risk.
9. Automate as Much as Possible
If you can automate some of your processes, your life will be much easier, and you'll have more time to focus on growing your business. Automating as much as possible is an important step to streamline your business and increase your productivity.
Whenever possible, you should be looking to replace manual processes with automated ones – as much as you can. Whether that's taking payments online, via a mobile banking app, or through some other form of automated payment processing, if there's something that can be automated, do it!
10. Identify Areas for Improvement
Once you have established a solid cash position, you can begin to identify areas for improvement. Are you spending too much on rent/mortgage? Are you struggling to find the right staff for the right price?
These are all important questions that you should be asking yourself, and you'll only be able to answer them if you've examined your accounts receivable in detail. After you resolve these respective questions, you can start to work on them to fix everything.
For example, you may decide that you want to renegotiate your rent or mortgage interest rate to make more financial sense – or you may decide that you want to consider alternative staffing models or look at different ways of collecting payments using software from your customers.
11. Prepare for The Unexpected
It's crucial to be prepared for what is unexpected – which is why you should have systems in place for dealing with these situations. It may be that you'll experience a significant drop in income due to a pandemic, a natural disaster, or significant legal action.
Be sure to revisit these systems frequently to ensure they're up-to-date and effective – especially since new information may arise that was not previously known. Prepare yourself for the unexpected and can take advantage of opportunities when they arise.
12. Provide Customer Service
There are many essential facets to providing excellent customer service, but one that is often overlooked is accounts receivable. This refers to the money a company or a business owes its respective customers.
A compelling accounts receivable system is crucial to maintaining a good relationship with customers and ensuring they continue doing business with the company. There are a few aspects to look out for regarding accounts receivable. First, companies should have a clear and concise policy for billing systems and payments. Customers should be invoiced promptly and given time to pay their bills.
Moreover, businesses should be proactive in following up on late payments. This may involve sending reminder emails or making phone calls. Finally, companies should be open to negotiating payment plans if customers have difficulty paying their full bills.
13. Process Refunds
In any business, it is essential to keep a close eye on accounts receivable. In order to keep your accounts receivable in good standing, it is important to process refunds and adjustments promptly.
Refunds and adjustments can happen for different reasons. Perhaps a customer was billed twice for the same purchase, or maybe they received damaged goods. It is important for you to address these requests as soon as possible.
The Bottom Line
Accounts receivable goals are the standards a company sets to ensure that its invoices are paid promptly. Businesses can avoid cash flow issues and keep their finances healthy by setting these goals. Companies should look at their average payment terms and set realistic goals for them. They should consider their customer base and set goals that reflect the ability of their customers to pay.
Businesses should monitor their receivables closely to ensure they accomplish their goals. Setting accounts receivable goals is an integral part of business financial planning. By taking the time to establish these goals, companies can avoid many of the common problems associated with late or unpaid invoices.
ZarMoney helps you to find the right balance between being open and transparent about your business finances while still protecting your competitive edge. They also provide the right systems and processes in place to make this possible. Learn more about accounts receivable on ZarMoney and don't forget to explore their free trial.
