Having an efficient accounts collection process means you can maintain good relationships with clients, improve the business’ cash flow, and manage tasks that take precious time.
Young business owners however have little idea of how to improve their AR collection. As a result, they are exposed to the risk of not having enough cash on hand to sustain business operations.
In this blog, Finsmart Accounting – the leading outsourced accounting company – will share tips and ideas to collect and improve accounts receivables. These insights will help you identify and fix potential cash flow problems before they adversely impact your organization.
Are you ready to check out our list of best accounts receivable collection tips and ideas? Let’s go!
#1 Create A/R aging report
The first and foremost thing to take control of your accounts receivable collection process is to create an A/R aging report. For those who don’t know, it is a record that demonstrates the unpaid invoice balances in conjunction with the duration for which they have been outstanding.
Creating an A/R aging report will:
- Help you track and measure the payment status of all your customers.
- Help you follow up with clients so that they know you are on top of the billing and collection process.
- Get the measure of payment terms with suppliers and make required changes.
While catalyzing an A/R aging report, write the amount of debt owed by each client and segregate them into groups according to the number of days since the invoice. Break the days down into categories like 0-30, 31-60, and 61-90. This will tell you what type of action is required against each party.
#2 Follow a proactive approach
Being proactive is being in control and power. Delayed payments from your clients can limit your business’ cash flow and hinder its growth. The delays may also stop you from taking on new projects, onboarding resources, or investing in new equipment.
Having a solid on-time accounts receivable collection system will let you act on troublesome payments right away and allow you to stay on top of business finances. Reach out to customers as fast as possible and let them know that they are in the red. By doing so, you can make certain that all parties are on the same wavelength concerning payment deadlines, the amount owed, and payment methods.
#3 Avoid delay
DELAY is the worst enemy of PROGRESS. If your customers are late payers, they can increase your Days Sales Outstanding (DSO) and the amount of money your business has invested in accounts receivable. Put simply, they can outstretch resources enough to embroil you into a cash trap.
The best practice for improving your accounts receivable collection process is to avoid delays. Move quickly and do not lose time dispatching notices when accounts are past due. Accounts receivable automation software like Lockstep Collect or FreshBooks can help you diminish late payment problems and boost cash flow and efficiency.
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#4 Send reminders
This AR collection tip can help you improve your business’ accounts receivable collection process. A large percentage of invoices get overdue because customers accidentally miss due dates. Sending payment reminders via emails, text messages, or push notifications (if you are using any AP portal) can help customers make payments on time.
This tip can also increase customer contact and make short work of dispute resolution. Send reminders to all of your clients at predefined intervals, say 7 days before the invoice is due. You can also call them directly for a friendly reminder depending on the industry and geography in which your business operates.
#5 Analyze credit risk of customers
Do you know that payment collection closely consorts with client credit risk as well? Yes, you read it right! The higher the credit risk score of a client, the more difficult accounts receivable collection is going to be. Therefore, perform credit risk analysis on your clients.
Credit risk analysis helps ensure a positive cash flow by:
- Minimizing bad debts
- Reducing DSO
- Mitigating financial risks
- Improving customer experience
By analyzing the credit risk of your clients, you will be able to determine the borrower’s ability to meet your business’ debt obligations and safeguard yourself from a serious loss of cash flow.
#6 Offer a good customer experience
A wise man once said, “It takes months to find a customer and seconds to lose one.” Collecting accounts receivable doesn’t mean you have to be unprofessional and turn the air blue for your customers. Instead, try putting yourself in their shoes and have polite conversations. Understand why they fail to pay your business on time.
- Is it because of insufficient cash flow at their end?
- Is it because of a temporary problem with the bank
- Is it because they have issues with your product or service?
Whatever the case, just listen to their reasons carefully. This will help you build strong and long-lasting client relationships. Some of you might be thinking, “Okay, but what about those with unreasonable excuses?”
Well, you can handle such customers with a straight face. Just don’t overdo it as it can jeopardize your relationships and hurt the reputation of your business.
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#7 Outsource AR experts
Let’s be honest. Handling the accounting receivable collection process is not everyone’s cup of tea, especially for teams that have to carry oversee a lot of business functions including production, procurement, marketing, client support, and management. To them, we recommend outsourcing AR AP experts.
Hiring a team of outsourced AP and AR experts can help simplify the accounting receivable collection process and reduce your cash flow burden greatly. Using the best AR strategies, the team will help you determine methods to get paid faster and reduce processing costs.
Outsourced AP and AR experts like Finsmart Accounting work with its clients to optimize operational performance through effective financial management through order management, cash management, and debt analysis.
From following up with clients for invoice payments to updating books of accounts for inward receipts and flagging stuck-up cases to sharing AR reports, our team of highly experienced accounts receivable experts can completely manage the AR process.
Accounts Receivable Collection Process: Final Words
Above are some useful tips and ideas for improving your accounts receivable collection process. We know the collection is a complex and delicate process but still an important one for every business. Our tips and ideas will ensure that you meet your payment collection target without ruffling customer-business relationships and brand reputation.
Got any queries to ask? Send them to info@finsmartaccounting.com and have them answered by our AP and AR experts.
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Founder & Director
Shalaka Joshi, a Chartered Accountant passionate about outsourcing and problem-solving, brings over 20 years of extensive experience in accounting, payroll, and MIS reporting to her professional endeavors
