How to Streamline Your Accounts Receivable ProcessMed Miles LLC
Whenever your company provides goods or services without requiring full payment upfront. You will invoice against accounts receivable. If this process does not go smoothly. Your company will spend a significant amount of time tracking down unpaid balances. And trying to collect payments. Knowing AR invoicing best practices and how to make the process more efficient will save you time. And streamline your claims processing.
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Companies should have strong policies and processes in place to improve receivables invoicing. This includes regularly reviewing ARs, proactively managing invoices, and ensuring customers have received and are processing invoices. And complying with their payment terms.
How to Streamline Your Accounts Receivable
Evolve a Simple and Clear Credit Approval Process:
If you’re in the business of providing loans to customers. Then you want a clear and concise process for approving applicants.
You don’t want to give credit to customers that will freeze you out. So, a thorough application process is necessary. This should include the detailed criteria you are looking for. A credit limit should also be established.
Also check: How Accounts recieveable management Benefit for your practice
Document Your Standard Operating Procedures:
A good method to get everyone on the same page is to document standard operating procedures, otherwise known as SOPs. A standardised way of working reduces accounting errors. And simplifies the process of hiring new employees in the accounting department. But SOPs aren’t just for finance teams. They should also be viewable to the entire enterprise.
Clients may ask questions during the sales cycle or when working with customer success managers or client partners. So external staff should have a high-level understanding of the AR process. With so many eyes on SOPs, be sure to update them whenever any part of the AR process changes.
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Be Picky About Your Clients:
It would be nice to do business with everyone who walks in your door. But the truth is that not everyone is fit to trade.
If you’re in an industry that relies on getting paid after you ship products or provide services, then you’re operating on credit. In this case, you have to be careful who you do business with.
It is common for businesses to provide references to prove their credibility. So, to make sure your clients are worthy. You should do credit checks and reach out to vendors they do business with (or have done business with). Don’t be afraid to ask for references to talk to. This is ideal if the transaction involves thousands of dollars.
Put Your AR Online:
Manual AR processing can be time-consuming and expensive. Consider some of the tasks associated with AR processing:
- Creating invoices.
- Sending invoices.
- Sending a late payment notification.
- Collection of payments.
- Reconciliation of payments against outstanding invoices.
The above certainly does not cover the entire AR glove. By digitising your AR, you can start moving some processes online. For example, customers will be capable of paying outstanding invoices. Payments will be refined and recorded in your AR accounting system. This eliminates repetitive tasks.
Further, customers will have entrance to view outstanding invoices and their payment history. This will help reduce the number of random inquiries about invoices and payments. Customers will also be capable to view their credit limits and even request a credit limit increase, all online.
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Stop Doing Collections:
Collecting old debts is a time-consuming process. Your AR team is probably not the best group for the job. There are specialists, known as debt collection agencies, whose primary focus is debt collection.
These agencies will impose a percentage of the debt collected. Fees can be high. To find out if using a debt collection agency is worth it. Calculate how much you’re paying for the work. If the costs of the collection agency are lower than your costs. The choice of using a collection agency is easy.
Have a Plan:
For all the goodwill in the world, there will still be times when even your best customers can be late paying their invoices. More often than not, it will just be a typo. But you need to be sure that there is nothing else going on that you should know about.
Put a process in place to allow you to find out. Clarify when an unpaid invoice should follow. Maybe start with an email and then follow up by phone. Communication is key, but it must be structured and not sporadic.
Incentivize Early Payments by Offering Discounts:
One of the most challenging aspects of AR collection is ensuring timely and consistent payments. However, every business loves a good deal. Not every company will have a strong enough cash flow to accept the offer. But you can incentivize companies that do pay early by offering them some kind of discount.
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Reduced Transaction Cycles:
By decreasing the transaction cycle for goods bought or sold. You can help reduce many ancillary costs for your company. Longer transaction cycles can result in lower cash flow because in such cases the company is usually waiting for its buyers to pay. Which can then be used to pay its providers. Therefore, short deadlines for receivables and payables need to be created to streamline the process. Departments must be trained to issue purchase orders, and invoices. And other documents on certain days of the week or month.
Pros of AR (Accounts Receivable Process)
- Streamlined AR workflow – automation eliminates the need to manually prepare, send and search for invoices.
- Reducing potentially costly mistakes – Everyone makes mistakes, especially when invoices are constantly being added to their queue. Automation reduces the likelihood of errors, which saves you money in the long run.
- Real-Time Reporting – Since the software continuously monitors when invoices are sent and when payments come in, you can see your current cash flow at a glance.
Cons of AR (Accounts Receivable Process)
With the above benefits, automation sounds great, but it may not be feasible for every company. Here are a few reasons:
- Implementation takes time and careful planning.
- Potential restrictions on formatting and content.
- It can be expensive without the right solution.
Improving your accounts receivable billing process is about thoroughly understanding your accounts and getting the information you need to take action. You need to understand the payment status of all your customers using metrics like AR turnover calculations. This allows you to see developing problems before they take hold.