4 Reasons Why You Should Improve Your Accounts Receivable System
Good accounts receivable management is essential whether you are a small or large business. After all, your AR department is the first line of defense against bad debt and overdue payments. Unfortunately, many businesses neglect their AR department until it is too late. They do not realise the importance of an efficient system until they get buried under an avalanche of bad debt and invoices that cannot be collected. A good accounts receivable system does not just help you collect faster; it also reduces your bad debt and improves your cash flow by enabling you to predict future revenue streams more accurately. Here are four reasons you should improve your AR system immediately if you have not already done so.
- Collect overdue invoices immediately- If you want to collect more of your overdue invoices, you need to ensure your customers know that you take accounts receivable seriously. And the best way to show you are serious is by collecting overdue invoices immediately. It is not a good sign if a customer cannot pay an invoice after a certain period. You might want to consider revising your credit terms depending on the type of industry you are in. For example, the retail industry usually has shorter credit terms than most other industries because customers have less cash flow than contractors or manufacturers. So, if you are in retail, ensure you collect your overdue invoices as quickly as possible to avoid risking your cash flow. No matter the type of industry you are in, you should automatically send a follow-up email to any customer who fails to pay an invoice on time.
- Know which customers are slow to pay- You can improve your accounts receivable management if you know which customers are slow to pay. You can determine this by creating a payment schedule based on the days your customers have to pay. If you have a customer who is always slow to pay, you should contact that customer as soon as an invoice is due. You should let the customer know about the payment delay and discuss it with them to see if there exists a valid reason for the slow payment and the best way to resolve the issue. By knowing which customers are slow to pay, you will be able to take appropriate action before it is too late.
- Automate your accounts receivable process- You can automate your accounts receivable process if you want to speed up the collections process and reduce your bad debt. Most AR systems, such as invoice processing software, allow you to create a payment terms schedule. You can then select the payment terms associated with each customer. Moreover, you can create automatic alerts for customers behind on their payments. Many AR systems also allow you to send automatic reminders to customers who have failed to pay their invoices after a certain period, such as 10 or 15 days. You can use these features to automate your accounts receivable process, which will help you collect faster and with less effort.
- Detect and prevent fraud- If you want to detect and prevent potential fraud, you must keep track of your inventory and accounts receivables. You can begin by creating a list of customers who have not paid their invoices. You can cross-reference this with your inventory list to see which customers have not received the products yet. You might also want to compare your AR list with your customer list to see which customers are not paying for the items they bought. Such methods can be used to detect and prevent fraud. Or you can rely on outsourced bookkeeping and accounting services which help to uncover all the potential frauds and discrepancies within your AR system.
Accounts receivables management is an important aspect of any business as it is the primary source of cash flow. Therefore, it is essential to invest in an effective AR system. However, business owners are often preoccupied with multiple tasks, which leaves little time for such crucial tasks. Therefore, it is better to look out for alternatives like outsourcing. Along with outsourced bookkeeping and accounting, you can outsource specific functions like AP and AR. With the help of outsourcing, you can ensure both efficiency and effectiveness and save time and money as well.