One of the many challenges that growing companies face is how to effectively manage their accounts receivable. Without proper processes in place to receive prompt and timely collection of payments, your business could be in for a disaster.
Late payments aren't uncommon. 48.8% of B2B invoices in the United States are paid past their due date. A staggering 92.6% of B2B businesses report late payments from domestic B2B customers.
Delayed payments can wreak all kinds of havoc on your budget and bottom line. Delayed invoices don't just cause problems for your bottom line, either. The longer payments are delayed, the more they dwindle.
A report from Inside Account Receivables Management shows that payments that are delayed by over 90 days decrease to 20% of their original value.
Let's take a look at how to set up an effective accounts receivable strategy so you can get what's owed to you.
Accounts Receivable Management 101
Intuition and flexibility are wonderful traits. They're not the best for business, however. When it comes to business practices, having a set system in place is much more efficient and reliable. It will also remove considerable amounts of stress from your life while enhancing your bottom line at the same time.
Here are four steps to help you set up an accounts receivable process.
Establish Credit Practices
The first step in creating an actionable accounts receivable program is to come up with a concrete credit application process. This lets you set guidelines for who is eligible to receive credit and who isn't.
It'll also let you create terms for paying back credit payments. These include interest rates and how long customers have to pay back their accounts.
Regular reminders are an integral part of a well-oiled accounts receivable process. This lets your customers know they still owe you money, as well as the current status of their account.
Sending invoices also helps keep your paperwork in order. Every invoice gets a unique number. They don't have to be paper, either. There are many electronic solutions out there, which are inexpensive and efficient.
Track Accounts Receivable
Having someone keep track of your accounts receivable ensures that nothing will slip between the cracks. This is often overseen by an Accounts Receivable officer. They keep track of payments received and generate invoices for the remaining balance.
They also make sure the AR ledger is kept up-to-date so that all accounts receivable and debts are current and correct.
Smaller companies may decide to update their accounts receivable themselves. If you do, it might help to allocate some dedicated time solely for that activity. It'll help keep you focused and thinking in the proper mindset.
Account For Accounts Receivable
Many small- and medium-sized businesses can't withstand unexpected financial hardship. Knowing the status of all the unpaid debts you're owed is the first step to make sure your cash flow is dependable.
The accounts receivable process involves establishing a due date for current payments. It also helps to account for late payments and bad debt. This lets you keep better track of your cash flow, so you know where you're at and where you're heading.
Let the MGA Team Help You Get Things under Control
Our F.A.S.T. (Finance Accounting Support Team) service is here to help you with all things A/R related. We first take the time to understand your unique business, then we can customize a billing and collections strategy to fit your specific needs.
If you’re struggling with getting paid on time or are looking to enhance your bottom line, let us help. By outsourcing your accounting functions to a reputable firm like MGA, you can focus on more mission-critical activities.
Let us do what we do best, so you can do what you do best.