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Pankaj Tyagi
| Updated: 06 Mar, 2021 | Category: Finance & Accounting

10 Simplistic Ways to Manage Accounts Receivable Process Effectively

Manage Accounts Receivable Process Effectively

In case you have been combating the shortage of cash flow & can’t quite manage to pinpoint the reason why you are encountering such an issue- it’s possibly time to investigate your Accounts Receivable Process. Effective receivables management is the key to the success of any organization. Any anomalies in this regard can lead to a chaotic situation and loss of revenue.

Over 50% of small firm owner pan India has issues with payment accumulation, which eventually compromises the firm’s financial health. Carrying out receivables management is the only solution to this severe problem as it can strengthen the cash flow and impart transparency within the company’s Accounts Receivable Process.

Strategies to Prevent Deterioration of Accounts Receivable Process of Company

Following strategy can help you pinpoint the root cause and fix the prevalent issues with the Account Receivable Process.  

Accounts Receivable Process

Optimize Invoicing Management

You should keep track of pending invoices and maintain them monthly accordingly. It would help if you had a clear idea of which invoice is due or overdue. It is recommended to keep an eye on invoice processing, so whenever you are striving to receive a payment, you can also track other outstanding account balances.

Make the list of the customers who often make a late payment. Also include those individuals who skipped the payment more frequently. Optimizing invoicing management can help you fix fundamental issues with the Accounts Receivable Process.

Centralizing the master data process to improve the accuracy of customer information is an essential part of setting up an effective Accounts Receivable Process. For example, incorrect information can cause the invoice to be routed to the wrong place, which lets the customer delay payment.

A timely audit should be conducted to identify anomalies like inappropriate payment terms, discounts, and credit limits. Modifications to client data ought to be appropriately documented & control should be in place to deter illegal entities from manipulating the data.  

Read our article:Simple Techniques to Improve the Accounts Receivable Turnover

Revise the Credit Policy

A small firm owner who functions by way of payment terms must have the policy to access new customers. Even though somebody intends to avail service of your company, it does not necessarily mean you must instantly recognize them as far as the credit is concerned.

Perform background verification as well as a credit rating check. Remember, the good Accounts Receivable Process also excels on an optimized credit policy of the company.

Create Back Up Regarding Customer’s Interaction

It is essential to draw a line between customers who generally haven’t been intimated to their overdue payments from clients deliberately disregarding the payment reminders. If you would like to speed up the collection process or perhaps move to the court to resolve the dispute, obtaining a reported correspondence history could increase the chance of your success.  

Consider Invoice Factoring

Invoice factoring can help the business to funds their urgent cash needs by selling their accounts receivable (invoice). Companies who encounter issues in managing their cash flow can leverage Invoice factoring and get the immediate funds from the concerned party. This way, the company can get rid of a big pile of outstanding payments from their customers. This would restrain you from encountering a scarcity of funds within the organization.

Hiring Third Party to Manage Account Receivable Process

Well, maintaining the Account Receivable in bigger companies is a tedious undertaking. If you manage an organization with a considerable footprint, it’s better to outsource the Account Receivable Process.

Effective AR management seeks significant time and money, which many companies may not afford to address, and that’s where third-party services come into the picture. Outsourcing accounts receivable would be a great idea for someone having issues in maintaining a large pile of invoices.

Speed up the Follow-Up Protocol

Reminding the customer on time is imperative as far as the payment collection is concerned. Potential customers having due and overdue payment needs to be intimated strategically to ensure the smother cash flow. Speeding up the remainder protocol can help the Account Receivable Process to perform better than usual.

Control Overdue Payments

Increased overdue payment is also a key indicator of your financial health[1]. If you fail to take relevant measures on time, overdue payments can easily be shifted to non–payment zone.

To avert such a situation, you need to make necessary changes to the existing payment policy. Keep collections at the top of your priority list because of the last thing you do not want is to face financial crunch in the most demanding situation.

Incorporate Automation within Account Receivable Process

Investigate various classes of programs and software for automating as many Account Receivable Processes as possible. The more you remove the manual intervention, the more subtle and dependable the entire process will be.

Much software is costly, by the Return on Investment (ROI) is significant as there is a negligible error, and in many cases, productivity gets a boost too.

Prefer Electronic Billing

If you have a suitable system in place to do so, start billing clients electronically. The fewer invoices you have to send & paper checks you have to process, the convenient and less complex the entire will be.

Leverage Favorable Payment Terms

There is no such thing as non-alterable payment terms, which means you can alter them as per your convenience to make the invoicing system efficient than ever. Generally, a company having shorter payment terms is less likely to confront Account Receivable Process issues.

Conclusion

An effective Account Receivable Process can ensure the best financial health of the company. You can leverage the points above to mitigate the hindrance that prevents you from ensuring transparency within the accounting structure.

There is no denying that maintaining the Account Receivable Process is a cumbersome errand as it seeks constant monitoring and ample time. As it is evident from the above, you don’t have to start from the ground up to optimize the Account Receivable Process. You can choose one area at a time, or you can plunge to revamp the entire structure at once.

Read our article:Accounts Receivable: Definition and Tips to Manage

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Pankaj Tyagi

Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.

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