Managing account receivables (AR) is one of the most important processes to ensure financial stability. A strong AR management process can help you grow your business and prevent future financial troubles. However, managing accounts receivables is not as simple as it sounds. Managing ARs can be challenging if you do not know what not to do. If you want to get started in accounts receivable management and understand some common mistakes other companies make, keep reading this blog for tips on avoiding those errors in your accounts receivable management process.
- Do not ignore your accounts receivable aging- The first mistake many companies make with accounts receivable management is ignoring the aging of their accounts receivable. Many companies keep their accounts receivable balance on their bank balance sheet, which often leads to a cash crunch. Banks cannot lend money by placing your company’s bank balance on their balance sheet; rather, they can only lend money if they think you will be able to pay it back. The longer an unpaid invoice sits, the less likely the account holder will pay. So, the key to successfully managing accounts receivable is to keep your ARs current and always pay them as soon as you receive them.
- Set up an automated payment system- The next tip you need to ensure successful accounts receivable management is to set up an automated payment system. This system should be in place for all invoices that are more than 30 days past due. If you are using cash-basis accounting and not tracking your accounts receivable, you are missing an opportunity to improve your financials. Tracking your accounts receivable and putting a payment system in place can help you identify the most overdue invoices. You can also use an automated payment system to send reminders to customers who have not yet paid you.
- Regular review of contract terms and AR balances- Another tip to ensure successful accounts receivable management is to create a process to review your AR balances and contract terms regularly. In fact, you should review your AR terms and conditions every month. The best way to ensure that you stay on top of your AR terms and conditions is to have an employee with experience in AR management. You can also set up a weekly process to review your AR terms and conditions with the Chief financial officer (CFO).
- Make sure you collect all of your ARs by the due date- The final tip you need to ensure successful accounts receivable management is to make sure you collect all of your ARs by the due date. Business owners can also discuss the same as one of the monthly meeting topics with their sales team. The sales team would be able to point out areas of missed ARs. In addition, it will identify areas where the business is falling behind in the collection process. It will help you reduce the overall collection period.
Conclusion
Now, you have seen some tips to avoid potential mistakes in your AR process. Besides the above points, organisations can follow various other tips to streamline their AR process. It is a fact that the whole AR process is complicated and time-consuming. It requires a lot of time and effort for business owners. In order to save time and effort, businesses can choose accounting software to manage AR, AP, and other crucial tasks. With the speed and accuracy of accounting software, business owners can focus on core activities while the software manages the rest. Some examples are Xero, QuickBooks, FreshBooks, and MYOB essentials online software.
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