Accounts Receivable…a crucial part of any business but can get out of control if not managed. Managing your Accounts Receivable or AR is essential for maintaining a healthy cash flow and ensuring the financial stability of your business. By streamlining your AR process, you can improve your collection turnaround time, reduce outstanding balances, and foster better customer relationships. Some key points for managing your accounts receivable more effectively:
- Clear Payment Terms: You need to have set payment terms for every customer/client. This should be defined in their contract or on their invoice depending on your business type. This includes defining payment terms, types of payment accepted, and interest rates if those terms are not met. These should be reviewed periodically and updated based on your business needs.
- Prompt Invoicing: Invoices should be sent out timely and reflect accurate information. Making sure the breakdowns, amounts, customer information, etc. are all correct prior to sending is imperative. Implementing a system for invoicing and tracking can reduce errors and delays. Timely invoices reduce the risk of disputes and helps getting payments on time.
- Monthly Statements: Establish a follow-up process for overdue invoices, monthly statements are one way to accomplish follow-up. Set a recurring monthly date to send statements to all your customers. This process will show all outstanding invoices and provide a reminder to those customers for payment.
- Payment Options: Make it easy for your customers to pay by offering payment options. This can include traditional methods like checks and credit cards, as well as modern options like online payment and mobile payment options. The more convenient you make it for customers to pay, the faster you’re likely to receive payments.
- Monitor AR Reports: Regularly review of your accounts receivable aging reports to track overdue accounts and identity trends. This report will show all your outstanding invoices and how long they are overdue. Use this data to prioritize follow-ups and identify any patterns that may require adjustments to your policies.
- Collections Strategy: Develop a clear strategy for handling overdue accounts. This might include structured payment plans for customers struggling or discontinuing services until outstanding balances are paid.
- Good Customer Relationships: Strong customer relationships can lead to better payment behaviors. Communicate openly with your customers about their accounts, address any issues promptly, and be flexible when necessary. Building trust can encourage timely payments and foster long-term business relationships.
Implementing these tips, can enhance your accounts receivable management, reduce outstanding balances, and improve overall cash flow. Effective accounts receivable management not only supports financial health but also contributes to a positive customer experience.
Carving out the time to manage you AR can also be difficult especially during busy seasons. This is where Plan + Prosper can help, I can create a plan specific for your business needs. For example, you just need someone to come in to track the AR, sending out invoices and statements once a month or every two weeks. Those are tasks that P + P can perform and depending on your business can be done remotely. I want to work with you to help you achieve your business goals. Contact me to schedule a free 30-minute call to see what we can work out to get you and your business on track for success!
