A business needs to make money if it's going to succeed.
This is why accounts receivable management is done to make sure you receive payments from customers on time and correctly is vital. A thriving business can be the difference between one that crashes and burns.
Throughout this blog, we'll help you understand why Accounts Receivable Management is so important. After that, we'll share a few best practices for ensuring your Accounts Receivable process is optimized for profitability, cash flow, and customer satisfaction.
The majority of business models allow for some of their sales to be made on credit. Accounts receivable refers to an organization's outstanding invoices.
The money owed to you by a customer who has received a service or product before completing payment should be categorized as accounts receivable until they pay. You are considered to have earned revenue once they pay you the money you owe.
In other words, accounts receivable management is tracking, managing, and following up on the money owed to your business.
You need a reliable account receivable management process if your company sells goods or services on credit; otherwise, you won't be able to:
Make sure you keep track of your debts
To avoid cash flow problems
Make sure you calculate future revenue
Describe your projected profits to potential investors
Cash flow is directly impacted by accounts receivable. You'd lose important customer relationships if you didn't provide credit to customers.
Accounts receivables properly managed can be a lifesaver for a company, while improperly managed AR can spell disaster. If a customer delays payment for too long, this can easily lead to a cash flow shortage for the company.
If the business does not receive a steady influx of cash, it will soon be unable to pay its bills. Cash flow shortages caused by mismanaging AR can cause a business to fail-especially a small or new one.
A bad business plan and a bad location are two of the six biggest reasons new businesses fail. Managing your accounts receivable effectively is therefore crucial to the success of your business.
We're big fans of automating your billing system as a whole. It allows you to save time and streamline processes, so what's not to love?
However, when it comes to automation, accounts receivable automation is one of the most important features your company should invest in.
Invoicing, accepting, and tracking payments are all repetitive tasks that can be automated to make sure they are handled promptly and accurately.
It can be challenging to track and manage accounts receivable; in fact, a QuickBooks study found that 65% of businesses spend an average of 14 hours chasing late payments every week.
If your accounts receivable management system is up-to-date and effective, you'll be able to stay informed about late invoices easily, but if you don't take action on the information, you'll miss out on valuable information.
Establish a collection policy that works for your company and stick to it. Once an account becomes overdue, your AR team should be able to act accordingly quickly and without hesitation.
The majority of small business owners are afraid to deal with customers who are chronically late with their payments. The problem is that if you fail to set up good procedures it's that much more likely that you'll be faced with non-payments and subsequent cash flow problems.
Keep things simple as much as possible to maximize your chances of getting paid on time. Your customers are more likely to complete the payment without delay or fuss if you make it as easy as possible for them.
Your business may want to accept multiple currencies if you have a lot of international customers.
You can improve your customer experience by offering a variety of payment options. It is much more likely that they will make the payment right away if they see their preferred method is available (especially if they can pay via a link within their digital invoice).
Lastly, keep an eye out for customers who are unable to pay their balances on time. Some people struggle regularly to meet their financial obligations, while others experience the occasional late payment or processing glitch.
If a customer regularly misses due dates, the risk of future payment problems may outweigh the benefits of continuing the relationship. Payment delays negatively impact businesses across all industries.
Ultimately, receivables management is intended to reduce bad debt and increase your profit-which can be challenging if your regular customers don't pay. If you use a policy, make sure that it applies to all your clients.
Don't specifically target any clients. Instead, implement a regular payment response policy. Include information about the penalties for repeat offenders in your terms of service.
Either take all these steps and manage your Accounts receivable or simply switch over to Maxyfi --> the one-click solution to all your Accounts Receivable needs.
Follow our maxyfi blog for more updates on accounts receivable.