7 Strategies For Optimizing Your Accounts Receivable Process

Do you also want to optimize your company’s accounts receivable process? First let’s know what’s accounts receivable? Accounts receivable are the payments owed by customers to your organization for billed items or services. The entire value of all accounts receivable is reported as current assets on the balance sheet and includes bills that clients owe for things or services completed on credit for them.

Accounts receivable have a significant influence on the cash flow management of the organization. If working capital dominates the balance sheet, organizations must take appropriate action before running out of cash.

We have examined seven ways for enhancing your accounts receivable process. These ideas may assist you in improving your company's accounts receivable processes.

1. Begin the Process as Early as Possible

The main thing to remember is to start implementing techniques for producing sales and creating customer relationships as soon as possible. This guarantees that preemptive measures are made in response to a scenario. This entails discussing payment terms, credit periods, incentives, and other factors early in the sales process.

Companies determine their terms in different ways. Smaller businesses may prefer shorter payment schedules since they require more cash flow, whereas larger businesses have the money to wait longer. Terms may also differ depending on the customer's credit and payment history. Clients who have paid their bills on time, for example, are more likely to have a bigger credit limit and a longer payment plan.

2. Maintain Consistent Customer Records

Centralizing the master data process to verify the correctness of client accounts and information is an essential step in developing and maintaining an efficient accounts receivable process. Incorrect addresses, for example, might cause bills to be addressed to the wrong address, resulting in late payments.

Customer data changes should be thoroughly documented, and controls should be put in place to prevent unauthorized personnel from accessing or editing data.

3. Create Effective Credit Approval Process

Extending credit can be a very good thing, but a process for doing so must be established. It should include clear instructions regarding when and how to evaluate and override credit limits, when to place accounts on hold, and how the application process works. To maintain an effective credit approval process, you can practice following:

• Solicit feedback from the sales staff while developing policies to ensure that market realities are taken into account.
• Determine when credit limits should be reviewed.
• Commit to either accepting or rejecting credit applications within a specific time frame.

4. Automate Your Invoices

Businesses frequently suffer in this area. Some consistently commit invoice mistakes including units of measure, pricing, customer accounts, or other incorrectly represented master data. The objective here is to develop a billing procedure that guarantees accurate bills are received on time. For this, organizations should adapt automation in the invoicing process.

Electronic invoicing eliminates the obvious delays and costs associated with postal mail. These Automation features drastically reduce the amount of time spent contacting suspect accounts. Automating the invoicing process also makes it easier to send out scheduled payment reminders to clients by email, phone calls, text messages, and other ways of contact.

5. Simply the Cash Application Procedure

When payments arrive, they must be applied to both the relevant customers and the appropriate customer bills. This must be done on a regular basis so that you always know which accounts are current and which are past due.

Otherwise, it's hard to monitor which clients paid which bills, making late payment follow-up a headache. Payment processing involves some mixing and matching. To prevent complex arguments, keep payment alternatives as simple as possible. Customers should be polled to determine their preferred payment methods. Moreover, you can practice following:

• Assign payments to certain invoices as opposed to merely crediting the customer account.
• Don't only pay the oldest bills; apply payments to the proper invoices as well.
• To preserve system correctness, credit payments to each account on the day they are received.
• Post journal entries on time and prevent putting money into suspense accounts. 
• Accounts should be reconciled as soon as possible, and unidentified cash receipts should be promptly and regularly followed up on.

6. Provide Multiple Payment Options

Some businesses choose to limit their payment options, however having only one method of payment might be inconvenient for some customers. When you compel clients to use tight payment methods, the A/R collection process will be significantly hindered. Consider expanding your options as much as your team allows:

• Transferring funds electronically
• Deposits between banks
• Cards de crédit
• E-payments (PayPal, etc.)

Customers can download their invoices straight into their accounting system when using an electronic billing system. If you send invoices, you will also save time on the delivery procedure.

Another advantage of invoicing electronically is the ability to specify multiple payment terms, such as shorter ones or installments, rather than collecting the money all at once. Make things easy for your customers, and your company's accounts receivable profitability will rise. 

7. Optimize the Accounts Receivable Collection Procedure

Not all businesses take aggressive measures to make sure receivables are collected on schedule. It is more difficult to distinguish which payments are past due and which will never arrive when the company's credit or collection standards are not followed. You need to maintain a consistent and thorough collection strategy to ensure successful accounts receivable collection. Accounts receivable collection strategies include the following:

• Payment Offers

Offering payment incentives on invoices is likely the most effective strategy to ensure quick payment from clients and enhance accounts receivable collections. Early payment reductions encourage customers to pay their bills before the due date. These conditions are often written in the style 5 percent 10 Net 30-, which means the client obtains a 5% discount if they pay within ten days of the invoice date, or else full payment is required thirty days after the invoice date.

• Evaluate Your Credits

Before granting credit to a new client, check their credit history to verify they have a strong track record of paying payments on time. Furthermore, establish a clear policy and educate your client about it before it goes into action. Consider implementing tighter credit assessments if your Days Sales Outstanding (or DSO) is increasing and you want to increase efficiency. These strategies will improve the Account receivable's efficacy and raise the company's cash flow. The faster an Accounts Receivable department can deliver invoices with effective payment incentives, multiple payment options, courteous reminders, and clear conditions, the more efficient your AR operations will be.

• Prefer recurring monthly costs over standard invoices

Billing your clients on a monthly basis might be useful when it comes to accounts receivable processes and procedures. It will assist to enhance the budget and encourage clients to pay on time. Furthermore, moving to regular monthly payments ensures that your customer may pay by Direct Debit, making it easier to retrieve payment when it is due.

Why Optimize Accounts Receivable Process?

• Maintaining a strong cash balance through proactive collections is the most essential advantage of optimizing accounts receivable. This guarantees that working capital is available for everyday operations.
• Automation enables organizations to auto-aggregate remittances across different channels (email, web-portals, EDI) and auto-map invoices with payments to ensure same-day cash posting.
• It provides accurate cash forecasting which gives end-to-end control and visibility of the accounts receivable, allowing the company to become more efficient in terms of cash management.
• A centralized backup document repository might aid the collection team in developing proactive collection methods.

Conclusion

When it comes to streamlining your accounts receivable process, you don't have to start from scratch. You can improve your approaches one step at a time or do a comprehensive sweep of each component at once. In any case, opting to strengthen your accounts receivable operations will reap significant benefits for your company.

Maintaining accounts receivable properly is crucial for every organization. Every company's accounts receivable procedure is critical since it is the only method to maintain a healthy workflow and working capital. Even if your accounts receivable process is solid, you may take it to the next level by implementing above suggested practices.

The aforementioned methods and implementations will undoubtedly aid in expediting the accounts receivable process, as well as improving customer happiness, customer retention, and profitability in the long run. Automation is a critical component to properly improving your accounts receivable. Getting services of an effective accounting software would be of great assistance in re is essential for effective automation of accounts receivable and collection.

ZarMoney is one of the most flexible accounting software that can manage your company’s all accounting needs including the implementation of these strategies to optimize accounts receivable process. ZarMoney's features demonstrate that it is the best fit mapping all of the above discussed strategies. ZarMoney can assist you up-lift your organizations’ accounts receivable procedures by providing wide range of advanced accounting features.