Ensuring your customers are paying on time can be challenging when running a business. After all, collecting this revenue is an integral part of most businesses’ models because it encourages sales while assisting buyers in optimizing their cash flow.
However, if you are unable to collect that revenue in its entirety and on time, it can quickly become a significant drain on your cash flow and future growth. Designing, implementing, and maintaining an effective AR management system should therefore be a central focus of your business strategy.
When completed, these tasks can result in prompt payments, satisfied customers, and high liquidity for the company. On the other hand, poor management can result in wasted staff time, accounting errors, lost revenue, and a negative cash flow in the business.
Make payment collection simple and effective in your company by using the advice in this article to improve accounts receivable management.
What exactly are accounts receivable?
Your accounts receivable (AR) is the total amount of money you are owed for goods and services delivered but not yet paid for. Keeping track of this figure is essential, as it can significantly impact your company’s cash flow.
Accounts receivable management’s goal is to ensure you get paid for what you’re owed while not extending credit to customers who are unlikely to pay. This can be a tricky balancing act, as unpaid invoices are one of the most significant challenges for SMEs in the United States.
So, what can you do to avoid becoming one of them?
Here are some tips on managing your AR:
Contracts must be signed before any work can begin.
Making sure your customer understands what is expected of them, what will be delivered, and when payment is due can help reduce the number of unpaid invoices.
Clear and upfront communication of your terms and conditions can help avoid confusion or disputes later.
Furthermore, if there is a disagreement later on, it may be easier to track what was agreed upon if everything is in writing. Having such details decided upon ahead of time can help smooth the process and ensure everyone is on the same page.
Create a credit control policy.
The foundation of any accounts receivable strategy is an effective credit control policy. This policy should outline the rules and procedures your company will follow to determine a customer’s creditworthiness and payment terms to offer.
It should be noted that different companies’ credit policies will differ depending on their industry.
Looking at what other businesses in your industry are doing will give you a good idea of what’s typical for your enterprise.
Keep an eye out for changes in your AR trends.
If you notice a trend toward higher or lower amounts of money owed, look at why that might be happening. Maybe you’re seeing more customers paying late, or possibly people are canceling their orders more often than usual. Either way, there could be an issue with collections or customer service that needs to be addressed.
Be proactive about collecting outstanding debts before they become problems!
Send out letters reminding customers about their outstanding bills; call them when necessary, and ensure everyone who works in customer service knows how crucial prompt payment is!
And if someone says they can’t afford to pay? Offer them a payment plan!
Effective accounts receivable management truly has the power to make or ruin a company. Giving away services without getting paid is not sustainable. Instead, you can maintain your cash flow, meet your responsibilities, hit your profit targets, and plan for future growth by having a dependable system that tracks and reminds your customers of their duties while also considering their demands.
BookkeeperLive can help you on improving your AR management. We will provide a team of bookkeepers experts in your industry to ensure you get the most out of your efforts.
BookkeeperLive provides bookkeeping and accounting services at affordable prices. We will work with you to determine your needs, create a plan for reaching your business goals, and implement that plan.
Our team of experts can handle everything, so you can focus on running your business!