Does your company’s accounts receivable process have room for improvement? Keep reading to learn about common pitfalls in the AR process and what your business can do to improve.
Is Your Accounts Receivable Swamped?
Did you know the average U.S. business has 24% of its monthly revenue tied up in overdue invoices? The money held up in outstanding AR could be used to hire new employees or grow your business. Poor AR processes could be holding your business back from its true potential. Keep reading to find out about common AR challenges and how to overcome them.
Partnering with a debt collection lawyer is the most effective legal recourse to recovering your money. Continue reading to find out more about what debt collection lawyers do, signs you may need one, and how to choose a collections lawyer.
Proper organization is the key to any accounting system. A messy ledger muddies your accounts receivable process and leads to outstanding invoices. In extreme circumstances, poor ledger management can even lead to a cashflow deficiency. Keeping your ledger easy to navigate is crucial to improving your accounts receivable process.
How To Improve Ledger Organization
Follow these steps to clean up your ledger and improve your accounts receivable risk management:
Transition Into a Paperless System
Things are easily confused or lost in accounting systems that heavily rely on paper. If your accounts receivable depends on physical sources, invest in accounting software like an ERP (enterprise resource planning) system. It’s a straightforward way to digitize your AR process and keep information accurate and easy to find.
Centralize Your Information
Regardless of your AR system, information should be widely accessible and centralized. Information strewn across numerous sources can kill your AR team’s efficiency and even lead to errors. Transition into a paperless system to make sure your information is easily accessible on one online platform.
Analyze Company Spend
Reevaluate how you group your expenses. Try to find any trends—are there any categories that don’t create value for your business? Examination of your ledger can help you note any inefficiencies in your business.
Above Average Days Sales Outstanding
Days sales outstanding (DSO) is how long it takes your business to convert credits into cash. Compare your DSO to the industry average of your client. If your DSO is higher than average, your clients are probably going over their agreed-upon due dates.
How To Reduce DSO
While keeping your customers happy is important, your bottom line is too. Here are some ways you can reduce your DSO:
Incentivize Punctual Payments
Create an accounts receivable process that encourages clients to make payments before they’re due. This could include discounts for customers that pay early or a penalty for late payments. This is a straightforward and positive way to make sure you receive payments on time.
Add Multiple Payment Options
Your customers could be struggling to make their payments on time because of a lack of payment options. More options give customers the flexibility they need to make their payments on time. This simple change in your accounts receivable process can increase customer satisfaction and improve your DSO.
Optimize Your Debt Collection Strategy
Change your process of invoicing customers. Transitioning into an electronic invoicing process can streamline your debt collection. Online processes speed up billing and collections and lead to recurring payments, automating your AR process.
Don’t assume your customers are intentionally negligent about their payments—they may simply be forgetting to make them. Your company might need to improve the way it communicates with clients.
How To Improve AR Communications
Keep the flow of information clear by following these steps to improve your accounts receivable process:
Automate Your Communication
Instead of leaving the lines of communication prone to human error, opt for automation. AR automation tools can do anything from creating recurring invoice schedules to automatically reminding customers of upcoming due dates.
Send Invoices Immediately
Send invoices immediately after contracts are signed. This means that your customers will receive the invoice while the contract is at the front of their mind, which helps them remember to make the payment. Outside of sending the invoice immediately, consider sending regular billing reminders. These can be tied to:
- Shipped or delivered goods
- Completion milestones of the job
- Approaching due dates
Keep Customer Information Accurate and Updated
Your customers might not be receiving your invoices at all. Communicate with them and make sure all addresses and emails are up to date, because you can hardly expect your customers to pay invoices if they aren’t receiving them. Set up a schedule for asking your clients to update their contact info to keep your addresses accurate and your invoices on track!
Poor AR Management Policies
Does your business have any policies in place that are slowing down your AR department? Small managerial choices like credit incentives or payment options could highly impact your accounts receivable process. Accounts receivable is an asset and should be treated as such, so be sure to inspect your AR policies.
How To Improve AR Policies
You can improve your AR policies by:
Being Data Driven
A credit analysis process tailored to your customer’s industry can better inform your AR team and management about how to treat different industries and clients.
Being Straightforward and Honest
Be upfront with your terms of sale on credit. Make sure your customer understands what payments are going to look like and how long they have to make their payments.
Periodically Adjusting Your Credit Approval Process
Outdated credit approval processes can cause you to take on risky customers and miss out on customers that would be great for your business. Keep your credit approval process updated and make sure your risk profiles are current with the economy.
Rapid Collections Can Enhance Your AR
Do you have any of the issues we mentioned above? Partner with Rapid Collections and revolutionize your accounts receivable process!