Did you know that efficient management of accounts receivable (AR) is fundamental to a company’s financial stability and a steady flow of cash? It becomes more difficult to fund operating expenses and expansion plans when payments are delayed because of cash flow problems. Reducing delinquent payments, improving customer connections, and streamlining the collection process are all possible outcomes of clever Accounts Receivables (AR) management tactics.
If you seek improved administration of your accounts receivable, consider implementing these five best practices to improve accounts receivable management.
1. Clearly Define Credit Policy
Setting clear credit policies is the first step to improve accounts receivable management foundation. You may create clear expectations by outlining your credit conditions in advance, such as a net 30 or net 60 payment period, discounts for early payment, or penalties for late payment. Communicate these terms to clients in a clear and concise manner before giving credit, and make sure to reiterate them in every invoice.
Example: A business offering net-30 terms can offer a 2% discount to clients who pay within 10 days (2/10, net-30). This will encourage more clients to pay ahead of schedule, which is good for the business’s cash flow.
You may avoid payment conflicts in the future by being clear and professional with clients from the get-go by explaining all of your terms and conditions.
2. Simplify Invoicing and Follow-Up with Automation
There is a risk of delays and lost chances for timely payment reminders when invoicing and tracking are done manually. You may avoid delays in sending bills and reminders when you automate your invoicing process. You may simplify this process, cut down on human error, and identify possible payment risks with the use of accounts receivable software or customer relationship management (CRM) technologies.
Scheduling bills automatically when a deal is concluded and sending frequent reminders as the payment due date approaches are both made possible by automated systems. In addition, you may find accounts that are about to become overdue with the information that these systems give on consumer payment behaviours.
Example: A medium-sized service provider may automate the billing process by having invoices generated and sent out automatically after each transaction. To improve the chances of paying on time, you may set up automated reminders to go off seven days before and on the due date.
This makes sure that no invoice gets overlooked because manual follow-up is no longer necessary.
3. Always Check Your Accounts
Improving accounts receivable management requires routine account reviews to spot problems before they escalate. Finding high-risk accounts, studying client payment trends, and examining overdue invoices are all part of this process.
If you find that your customers are chronically late with payments, you may want to discuss lowering their credit limits or renegotiating their payment conditions. You may also find clients who are paying slowly and come up with individualized plans to get them to pay quicker if you do reviews regularly.
Example: Consider the following scenario: despite offering net-30 terms, a repeat customer persistently postpones payment for more than 60 days. One option would be to give a payment instalment plan to assist them to catch up on payments. Another would be to change their conditions to COD (cash on delivery) for future orders.
To safeguard your company’s cash flow, it is important to monitor your accounts and evaluate any risks.
4. Establish and Nurture Robust Bonds with Customers
To improve accounts receivable management, it is crucial to have strong, transparent connections with consumers. To avoid more serious problems with payments, it’s best to communicate openly with your clients and ask that they prioritize your bills. Another way to encourage timely account settlement is to provide clients with payment choices that are convenient for them, such as instalment plans or discounts for paying early.
Establishing a payment plan with consumers who are temporarily facing cash flow issues allows you to maintain the connection while still receiving your payments. When managed properly, flexibility has the potential to greatly impact both client loyalty and payment timeliness.
Example: If a long-term customer is having money problems, you may give them a payment plan with smaller, more manageable instalments so they can keep paying instead of letting their account go delinquent.
Customers are more likely to pay on time when you build trust with them.
5. Collaborate with an Expert Debt Collection Firm
When pursuing payment delays in-house becomes too tedious or fruitless, it may be time to bring in the big guns: a professional debt collection firm. You may concentrate on running your business as usual while a respectable agency handles account recovery.
By entrusting NCRI Inc. or another collection agency with your outstanding debts, you can be certain that they will be handled professionally and ethically, all while preserving your connections with your customers. To reduce financial risk, many agencies work on a contingency basis, which means you only pay them when they collect money.
Example: If, after 90 days, you still haven’t received payment from a client and your in-house collection attempts have failed, you may use a professional agency, such as NCRI, to assist you recover the debt without jeopardizing your relationship with the consumer.
In the case of long-overdue debts in particular, an agency’s experience in dealing with problematic accounts might improve your prospects of collecting payments.
Strengthening Cash Flow and Customer Relations
For accounts that are effective, the administration of receivables is essential for the preservation of financial stability and cash flow. Professional debt collection, strong customer relationships, automated invoicing, regular account evaluations, and clear credit policies can all contribute to the improvement of cash flow and the reduction of late payments.
Are you experiencing difficulty managing your AR? NCRI can assist you in ensuring that you are paid promptly while simultaneously fostering strong customer relationships. Get in touch with us today!
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