Accounts Receivable: Mastering Effective Management Strategies

The profit that you expect to make out of doing business with your clients is your business’s lifeblood. So any form of mismanagement of your accounts receivable can have a direct impact on the financial health of your business. If you are not getting paid and it is not a technical issue, chances are that there might be a larger underlying issue in your process. This is when you can leverage your sales and success teams that have direct contact with customers to help identify the root cause and find a solution. What this really means is that each stakeholder from different departments plays a key role in the process and that no one team is responsible for the entire process.

If your business is consistently receiving late payments, it means your invoice and payment strategy are broken. Keep constant communications and offer easy online payment methods or instructions. If you use paper billing, you can still automate your communications to save time and streamline your process a little. Use integration software like Zapier to set up triggers to contact clients based on inputs into your records. For example, set up a form email to send to a client when you enter into a spreadsheet that you’ve received a payment. Accounts Receivable Open, or AR Open, measures how many ongoing Accounts Receivable a business has in a given period.

Collect Payments Proactively

This ‘soft touch’ approach keeps communication open between you and your customer and ensures that they are aware of any upcoming payments. Remember that every touchpoint a customer has with your business (for instance, customer success) is an opportunity for you to proactively remind them. Accounts receivable represent funds owed to a company and are booked as an asset. Accounts payable, on the other hand, represent funds that a company owes to others and are booked as liabilities. Now that you know what a successful Accounts Receivable process is and why it’s valuable, you might be wondering how to get started.

Over the long term, these benefits contribute to steady revenue streams and a trustworthy business image. Satisfied customers are more likely to pay on time and maintain a positive business relationship. Clear communication and efficient payment processes methods under a periodic inventory system contribute to higher customer satisfaction levels. No company, no matter what size, can afford to take their eye off their management and expect their business to grow. That’s why it’s imperative that you get a good grip on managing your accounts receivable and take every step necessary to make sure you are keeping track.

How Are Accounts Receivable Different From Accounts Payable?

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1. Accounts payable is a current liability on the balance sheet, while accounts receivable is a current asset.
2. To create this report, you’ll group your accounts receivable balances by the age of each invoice.
3. The customer credit assessment step helps businesses choose customers who are more likely to pay reliably and on time.
4. Using data in this way allows businesses to make smarter decisions, anticipating challenges and addressing them in advance.

Revenue Recognition

In cases where the customer refuses all contact and payment, a business may choose to sell the debt to a collections agency as a last resort. Before delivering any goods or services, it’s essential to make sure the customer is credible. Businesses can also assess a customer’s payment history to check for credibility. For example, businesses that collect payments over a period of months may have a larger dollar amount of receivables in the older categories. Accounts receivable is the money that customers owe a business for goods or services that have been delivered but not yet paid for.

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The goal is to have a lower percentage of Accounts Receivable remain open. Tracking this metric can help businesses assess areas where it can improve its Accounts Receivable process. We provide third-party links as a convenience and for informational purposes only. Intuit does not endorse or approve these products and services, or the opinions of these corporations or organizations or individuals.