Accounts receivable management is a vital function of any business. How well you manage accounts receivable has a direct impact on cash flow and, ultimately, your organization's bottom line.
This guide explains why receivables management is so important, common challenges companies face, and best practices to start implementing now.
Learn how to improve your accounts receivable management processes so your teams can grow, become proactive, and take on more meaningful projects that don't involve chasing down overdue invoices.
1) Why Does Accounts Receivable Management Matter?
Accounts receivable management encompasses all processes involved in billing customers and collecting payments for goods or services.
An efficient accounts receivable management process helps maintain a healthy cash flow to cover operating costs and scale your business. Conversely, inadequate cash flow can result in severe consequences, such as hindered growth or even bankruptcy.
2) The Accounts Receivable Management Process
Though the exact process may vary from one business to another, every organization’s accounts receivable process involves two essential functions, billing and payment collection.
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Invoice issuing
Customers are sent invoices to notify them of outstanding invoices. -
Payment collection and reconciliation
Payments are collected from customers, and invoices are reconciled.
The reality of the accounts receivable process isn’t quite as simple. Performing and managing these core functions involves a number of additional tasks and considerations.
For example, it’s best to send timely reminders to customers between when an invoice is sent and when it’s due. How you send and track these reminders are also a part of the accounts receivable management process.
In addition to billing and collections, another crucial part of accounts receivable management is reporting. The ability to see a snapshot of the current state of performance is critical for effective accounts receivable management. At all times, you should have easy access to accurate data on key metrics, such as Days Sales Outstanding (DSO) or turnover ratio.
3) Common Accounts Receivable Management Challenges
Businesses today face many challenges when it comes to their invoicing and accounts receivable processes, which negatively impact liquidity.
Some of the most common accounts receivable challenges include:
- Errors in Invoice for payment
- Overdue payments (late payments)
- Missed reminders
- Writing off unpaid invoices as bad debt
- Allocating payments incorrectly
- Poor customer experience
- Limited employee time
If your business is being held back by these challenges, examine your accounts receivable management processes to identify the most significant pain points and areas of opportunity.
4) The Benefits of Automation on Accounts Receivable Management
The most effective way to improve your organization’s accounts receivable management is to automate your processes as much as possible.
A comprehensive accounts receivable automation solution enables you to take advantage of several key benefits:
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Higher accuracy
Human error can cause costly problems. Automation reduces the amount of manual input needed, which helps prevent inaccuracies. -
Faster billing and collections
Automation helps speed up the accounts receivable process to get you paid faster. Electronic invoices can be set to send the moment a sale is made, and automatic reminders can be programmed to encourage timely payments. -
Increased employee productivity
Automation dramatically reduces the time needed for manual billing and collections tasks, which means your employees can get more done and focus on larger projects. -
Better reporting and forecasting
With automation, you can easily collect the data needed to report on KPIs. An automated reporting system can also be used to accurately forecast when you’ll receive payments based on historical data.
Learn more about automation with our Guide Accounts Receivable Automation.
5) Accounts Receivable Management Best Practices
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Automate Invoicing
You can’t get paid until you send an invoice, so it’s important not to let inefficient processes or manual errors delay billing. Instead, try an automated billing solution. Automated billing tools can create invoices as soon as sales are entered into the system. These tools can then be set to send those invoices to recipients electronically immediately. This eliminates the need to spend countless hours manually creating invoices to help you get paid faster. -
Send and Track Multi-Channel Reminders
Reminders are a great way to encourage customers to pay outstanding invoices, but you need to have an organized system in place to ensure your billing reminders are effective.
Firstly, send reminders through multiple channels. You may start with reminder emails, but you should also have a system in place to include physical letters, phone calls, and even legal notices when specific markers are passed. For example, at 15 days overdue, an email is sent. In 30 days, a physical letter is sent. After 45 days, a phone call is made.
An effective collection process doesn’t rely on just one method of communication. For example, customers may miss an email or lose a letter, but you’re more likely to reach your target if you utilize a variety of touchpoints.
Secondly, each time you reach out to a customer, it should be documented. This will help you improve internal tracking and create a paper trail if legal action needs to be taken. -
Make Paying Easier
Barriers to payment can slow down the invoice-to-cash process and restrict cash flow. Therefore, it’s in your best interest to remove as many of these barriers as you can. This starts with making it as easy as possible for clients to remit payments.
Modern collections software can provide the solutions you need to accomplish this goal, including:-
Create self-service customer payment portals
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Accept a range of payment options
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Enable payment plans or subscription billing
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6) Efficient Receivables Management with e-Cont.md
Automation is the key to improved accounts receivable management. Give your team the tools they need to maximize efficiency in the payments process, understand your customers, and improve cash flow by taking advantage of accounts receivable automation.
e-Cont.md lets you program your entire accounts receivable operation, complete with dashboards, integrated reporting, and specialized tools for efficient, effective accounts receivable management. Register in e-Cont.md to see what we can offer for your business today.