Improving your collections of accounts receivable
Many businesses focus on measuring key performance indicators centered around sales but pay less attention to accounts receivable management. While sales are essential for any business, the process of converting accounts receivable to cash is also crucial. Improving collections of accounts receivable should be the crux of any business to ensure they have sufficient cash to stay afloat.
Accounts receivable, sales made on credit to customers, account for a significant part of a business’ assets in its financial statement, as most businesses afford their customers the flexibility to pay for goods and services between 30 days to 90 days. The accounts receivable asset is beneficial to the business only when it is realizable and converted to cash.
Cash is realized when accounts receivable balances are collected from respective customers. Effective working capital management is achieved when cash is collected in a timely manner and is readily available to meet the cashflow demands of the business. This is why improving collections of accounts receivable is important for every business, and essential for those needing additional liquidity to grow and succeed.
Ways to improve collections of accounts receivable
There are various ways to ensure cash from credit sales made to customers are collected, some of which include:
- Adopt a lean and effective accounts receivable process: A lean and improved accounts receivable process ensures invoices are accurate and sent in a timely manner. This reduces billing disputes and improves cash collection.
- Apply credit risk management: Prioritize thorough vetting of customers to assess and manage any credit risk involved in making sales on credit. Ensure effective policies and guidelines are set in place to enhance the approval process for credit customers.
- Build and maintain customer accounts: Build a robust database for customers which contain up-to-date and accurate information such as, legal name, contact address, billing information etc. Review customer accounts and details periodically to ensure invoices are accurate so as to avoid delay in payments.
- Practice effective invoice dispute resolution: Build healthy relationships with customers while simultaneously resolving any billing disputes. Use less aggressive means to hasten collections and only adopt extreme measures as a last resort. A good relationship with customers built on open communication and mutual understanding can encourage adherence to billing guidelines, terms and conditions.
- Review and monitor accounts receivable reports: Monitor accounts receivable reports weekly or bi-weekly to identify aging invoices before they become overdue. This enables you to address these invoices proactively and reduce the risk of bad debt loss.
How Accord Financial can help
The different ways to improve your accounts receivable collection involve a lot of time and effort. Alternatively, this can be done effectively by outsourcing the accounts receivable management process.
Accord Financial adopts a robust and technology effective method of accounts receivable management. Coupled with over 40 years of experience, the experts at Accord work with innovative processes to maintain accurate and real time customer information, build marketplace relationships, monitor collections and protect your business from bad-debt losses.
Accord also partners with your business to provide upfront cash on your accounts receivable balances for a fee through its accounts receivable financing and factoring services. This helps free up cash tied down with customers and ultimately improves your collection of accounts receivable.