8 Tips to Improve A/R Management


A/R Management
A/R Management Tips by MCDA CCG

Healthy cash flow is vital to improving operational efficiency, and one way to free up that trapped cash is through effective accounts receivable management techniques.  Below we will discuss 8 Tips to Improve A/R Management.

Most businesses wish they could snap their fingers and be paid on time. While that’s not quite how effective accounts receivable management works, with the right systems in place you can get your receivables flowing and your customers paying.

Accounts receivable management is not as complicated as it may seem. In fact, once you have a system and a process outlined it becomes a simple but vital part of your business process.

1. START WITH CLEAR PAYMENT TERMS

Eliminate guesswork when it comes to A/R management and credit collection processes.  Take the time upfront to explain your policies to your client/customer by:

  1. Addressing any questions or confusions your customers might have
  2. Be clear about your payment terms and policies before finalizing the terms

Payment terms are a common component of business, the most common being “Net 30”, which means the business gives its client at least 30 days to make a payment.  A lot of people “assume” they will be extended Net 30 terms, so be clear upfront.

For example, invoices that are over $1000 might have payment terms of “Net 30” whereas invoices that are under $1000 might be “due on receipt”. Regardless of your payment terms, make sure they are clearly noted on each invoice so that your customers immediately know when their payments are due and so that you are tracking cash flow correctly.

2. TIMELY PAYMENT REMINDERS

It happens all the time – a customer forgets about an invoice that’s almost due because the invoice was sent to them a few weeks prior. Sending an invoice early is okay, especially if you use snail mail instead of email, but remember that a lot can happen between the time the invoice is sent and when it’s due.

Part of having an effective accounts receivable management plan in place is creating a collections system for customer payments. This includes sending an invoice reminder three business days to a week before the due date to make sure the customer doesn’t forget.  In systems such as QuickBooks, this can be set up on an automated process.

A reminder also allows you to confirm whether the invoice has actually been received. If not, take the appropriate action, and send the customer another invoice.

Taking the time to send out reminders or follow-ups has a higher accounts receivable turnover rate than sending an invoice and then never following up.

3. SIMPLIFY THE PAYMENT PROCESS

In your process of setting up an invoicing system, consistency is key for the organization to ensure timely payments and a healthy accounts receivable rate.

In addition to building an internal invoicing system to ensure proper accounts receivable management and timely payments, making it easy for customers to pay invoices will also increase the likelihood of on-time payments.

For example, consider setting up electronic payment methods, such as an accounting or bookkeeping system with electronic payment method options and capabilities for customers. The easier you make it for customers to pay their invoices, the faster they will be paid.  For example, here at MCDA CCG, our invoices include a quick mobile pay option, QR code option to allow Apple Pay, Credit Card, and much more.

4.  DILIGENTLY FOLLOW UP WITH THE CUSTOMER

Even after you’ve made payments as simple as possible there will always be customers that still don’t pay. On the day the invoice becomes past due, start following up with the customer. Remind them of the late payment, so they know you’re serious about getting them to pay.  Remember to approach the first call or reach out with a friendly tone.

In most cases, customers will promise to send over the payment as soon as possible, or forward the payment details if payment has already been made. Consistent follow-ups allow you a sneak peek into the status of your receivables, such as if there’s a chance a customer will default, or if they’re simply hitting a temporary financial snag.  Be sure to make notations on what the customer promises you, so that you can accurately track, follow-up and contact them again with appropriate information.

Remember that the tone you use with the customer matters! The collection letter you send them 90 days after the payment due date should be more aggressive than the one you sent when the invoice was just 10 days late. When necessary, have a strong business lawyer draft a reminder letter containing the necessary legal language to make them understand that there are repercussions to not paying their invoices.

5. REVIEW YOUR PRICING MODEL

Many businesses are inconsistent in what they charge their clients. Of course, every client’s budget is different and your business may offer different deals or discounts at different times of the year or as part of a referral program. Therefore, every client might be charged differently.

However, it may be time to review your pricing model. Are you charging enough for your products and/ or services? Are you selling your products and/ or services based on value? If you are unsure of what to charge or if you are worried about overcharging, then analyze what your competitors are charging versus the value customers receive from working with your business compared with a competitor.

If your customers believe they are getting a good value by working with your company, then they are likely to pay your invoices on time.

6. WHEN NECESSARY – HIRE A COLLECTION AGENCY

Onboarding a collection agency to deal with late or unpaid receivables should be the last move– only if you can no longer handle receivables management in-house or if you’re collecting from customers you’d never want to do any future business with. Some collection agencies tend to be aggressive and can alienate your customers. Or worse, even damage your brand’s reputation. We highly suggest doing your homework and having upfront discussions with your collection agency before you onboard them.

As such, remember to hire a third party only if your time and money are more valuable than your relationship with your customers.

7. NURTURE CLIENT RELATIONSHIPS

Having a strong relationship with your clients is one of the best ways to keep your accounts receivables flowing.

Businesses that use polite language when delivering and/ or following up on their invoices, such as “please” and “thank you”, “yes sir”, “yes maam”, “no sir”, “no ma’am”, go a long way in getting paid in a timely fashion.

8. UTILIZE GOOD RECEIVABLES MANAGEMENT SOFTWARE

Enhance your accounts receivable management techniques with technology. Depending on the size of your organization something as simple as QuickBooks would be a great choice, all the way up to utilizing a full ERP system such as Epicor or SAP.  Trying to manage your receivables with a spreadsheet will do nothing but cause headaches for you and your customers.

CHAOS TO CASH

Billing and invoicing can be a pain or a challenge for many businesses, but it doesn’t have to be. By making invoicing a priority, setting up a cyclical system, getting organized, and simply being polite, you will be amazed at how quickly you get paid so you can spend less time on billing and invoicing and more time on doing what you do best: growing your business.

Looking for a proven accounts receivable management solution? MCDA CCG can help – manually managing an A/R department or refining an existing system can be a challenge, automate instead! MCDA CCG streamlines the accounts receivable management process easier with our credit and A/R programs.

Want to learn more?  Contact one of our Accounting specialists for a free no-obligation discussion. Call our office today (657) 258-0577

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