Do you know how much cash is sitting in your accounts receivable? Do you have overdue accounts on your books? Slow collections can cost you in wasted labor, poor cash flow, and inaccurate financial forecasts. It is an easy situation to get into. Businesses that emphasize revenue goals may extend credit to customers, offer discounts, or ignore payment terms if it means a new sale. Whatever your current state, you need to analyze it, set goals, and identify steps to achieve your goals.
Managing your accounts receivable well can result in operational efficiency, better liquidity, and lower costs. Using best practices and accounting ERP software, you can have more working capital to support company innovation and growth. On the other hand, poor management of accounts receivable can create a cash flow crisis and damage your company’s financial health.
Accounts receivable best practices
Here are some best practices that will help you take control of your accounts receivable process.
- Use electronic invoices to avoid delays.
- Offer electronic payment options such as electronic funds transfer and credit cards.
- Shorten payment terms. With email communication and electronic payments, customers no longer need extra time to pay. Simply specify “Payment due upon receipt.” As a courtesy, use payment cycles that fit your customer’s needs.
- Offer 1-2% discounts for early payment such as 2%/10, Net 20 days.
- Establish credit policies. Use credit checks and enforce them. Do not allow the sales force to override credit limits.
- Provide a customer portal for self-service. This not only can improve the quality of your customer data, but can also lower your labor costs and speed up data changes or payments.
- Have centralized customer master data with credit limits, payment terms, discounts, tax rates, etc. reflected in the billing and collection system. This will help your entire company—from accounting to sales to operations—to have accurate customer information.
- Provide accurate and timely invoicing and billing. Establish a billing process and follow it. Automation using accounting ERP software can reduce transaction time and manual data entry errors.
- Match payments to specific invoices. When questions arise, it will be easier to identify and solve problems.
- Review accounts receivable regularly. Track the aging of your receivables and systematically follow up on past due accounts.
- Adopt key performance indicators (KPIs). Implementing working capital metrics in addition to revenue and profit will give you a clear picture on days outstanding, percentage of customers who pay late, unreconciled items, write-offs, collection rates, etc. Accounting ERP software, like Sage 100, makes KPI tracking and reporting simple.
- Build cordial relationships with the customer’s accounts payable department. When problems occur, you will already have a working relationship making it easier to solve issues amicably.
- Train your staff on how to deal with late-paying customers.
- Use the telephone. Phone calls and direct conversation are the most effective way to resolve issues and maintain a good customer relationship. Collections should be done by the person doing the billing. Be prepared to negotiate payment plans.
- Maintain a collections record. For each over-due account, keep a log of follow-up and customer responses. Good reporting can make it possible to determine which accounts are collectible or in danger of default.
- Use a collection agency as a final option. Once you have involved a collection agency, don’t expect to get any more business from that customer.
Accounting ERP software can help you improve your accounts receivable situation
Is your business following these best practices? Do you have the systems in place to support your receivables department in implementing these items? Emerald TC offers professional accounting systems for small to medium sized businesses that can automate your accounting processes and improve your accounts receivable situation. Using accounting ERP software, like Sage 100, will improve data accuracy and present a professional face to your customer.
If you would like to evaluate your accounting ERP software options or learn more about Sage 100, contact Emerald TC.