A streamlined Account Receivable process means being paid on time, standardization, and predictable outcomes. But, how do you get to a streamlined AR process? The answer is with a plan and time. In this article, we’ll show you the steps to take in reaching a highly efficient AR process.
A policy ensures customers are treated fairly and employees are trained the same way every time. When employees reference the policy to determine how much credit to extend, when to send out late notices, and more, the customer experience becomes more standardized.
For employees training on the basis of a document that outlines your account receivable process, including what to do for specific scenarios, there’s less of a chance they’ll deviate from the plan, and less chance of an inconsistent experience for both customers and coworkers.
Creating a policy entails outlining your entire AR process as well as updating the policy as needed. When someone new joins the AR team, you’ll be able to provide him/her with standardized training.
A big part of a streamlined AR process is getting paid on time. If customers are constantly paying their invoices late, your AR is breaking down and has become ripe for an overhaul.
Late payments can be fixed before they even happen. Determine the client’s credit limit by going over its financials. Ask the client what its expected payment time frame will be. Then see where that time frame fits into your cash flow needs. If the client is asking for 60-day net terms but you need to ensure payments are collected within 50 days, you may try to get the client on 45-day net terms.
Manually processing AR can be time consuming and costly. Consider some of the tasks involved with AR processing:
- Creating invoices
- Sending out invoices
- Sending late payment notices
- Collecting payments
- Reconciling payments against outstanding invoices
The above certainly doesn’t cover the full AR gauntlet. By digitizing your AR, you can begin moving some processes online. For example, customers will be able to pay outstanding invoices. Payments will be processed and recorded in your AR accounting system. This eliminates repetitive tasks.
Additionally, customers will have access to view outstanding invoices and their payment history. That will help to decrease random call-in inquiries about invoices and payments. Customers will also be able to view their credit limits and even request a credit limit increase, all online.
That isn’t all the software will be able to do. It can send out email notifications when payments are coming due and when they’re past due.
Upfront integration will be costly; but, after that, the monthly cost will be considerably lower than current labor cost for the same outcome.
Digitizing your AR and opening up parts of it to the world requires hiring a team of developers for the online part. You’ll also need to buy an AR system that both integrates with the eCommerce site and your existing AR.
If you are still using mostly paper AR, the process may be a little easier since you can purchase nearly any AR system. For example, Quickbooks has a built-in feature that allows clients to pay their invoices online. No developers needed for this. Work with your accountant or bookkeeper to choose the right AR system.
Customers move, phone numbers change, and contacts quit. To keep up, periodically send an email or letter to your customers asking for updated contact information. Up-to-date contact information will save time in bounced emails, returned invoices, and chasing down clients who aren’t paying.
Sometimes customer data issues are on your side. A salesperson may have entered client contact information and then a week later the AR team entered information on the same client, creating a duplicate. Time should be set aside to cull any duplicates and update the policy with methods that help to avoid duplicates, such as designating one department to enter in client information.
While your updating customer information, it’s also a good time to review your AR’s performance and make any adjustments. This includes cutting clients who are always late with payments. Or, you can put these clients on a probation period and have them pay upfront for three months. Once they’ve shown a willingness to pay, move them to your strictest credit terms. As they continue to show they can pay, review and increase credit terms. How to deal with these clients should also be part of your written policy.
Collecting on old debts is a time-consuming process. Your AR team is probably not the best group for this work. There are specialists, known as collection agencies, whose primary focus is to collect debt.
These agencies will charge a percentage of the debt collected. Fees can be high. To determine if using a collection agency is worth the cost, calculate how much you are paying in labor. If the cost of the collection agency is lower than your cost, the choice to use a collection agency is an easy one.