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8 Effective Accounts Receivable Tips to Improve A/R

Topics: Finance, Credit & Payments, Management

If you’re a company that sells goods or services on credit, chances are you have cash sitting idle on your balance sheet. A healthy cash flow is vital to improving operational efficiency, and one way to free up that trapped cash is through effective accounts receivable management techniques.

Receivables are amounts you’re legally owed by customers. Therefore, it’s only wise to put all measures in place to ensure that your customers pay on time. 

Most businesses wish they could snap their fingers and be paid on time. While that’s not quite how effective accounts receivable management works, with the right systems in place you can get your receivables flowing and your customers paying.  

Accounts receivable management is not as complicated as it may seem. In fact, once you have a system and a process outlined it becomes a simple but vital part of your business process.  

Read on to learn about the steps to good receivables management and how these accounts receivable tips can help your business thrive.

1. Be clear about payment terms from the start

Leave no room for guesswork when it comes to your AR management and credit collection processes. Take the time to sit down with the client and explain your policies by

  1. Addressing any questions or confusions your customers might have
  2. Be clear about your payment terms and policies before finalizing the terms

Payment terms are a common component of b2b business, the most common being “Net 30, which means the business gives its client at least 30 days to make a payment.

For example, invoices that are over $500 might have payment terms of “Net 30” whereas invoices that are under $500 might be “due on receipt”. All in all, regardless of your payment terms, make sure they are clearly noted on each invoice so that your customers immediately know when their payments are due.

2. Send timely payment reminders

It happens all the time - a customer forgets about an invoice that’s almost due because the invoice was sent to them three weeks prior. Sending an invoice early is okay, especially if you use snail mail instead of email, but remember that a lot can happen between the time the invoice is sent and when it’s due. 

Part of having an effective accounts receivable management plan in place is creating a collections system for customer payments. This includes sending an invoice reminder three business days to a week before the due date to make sure the customer doesn't forget.

A reminder also allows you to confirm whether the invoice has actually been received. If not, take the appropriate action, and send the customer another invoice. 

It never hurts to send out reminders periodically to help light the “polite” proverbial fire beneath your customers. In fact, taking the time to send out reminders or follow-ups has a higher accounts receivable turnover rate than sending an invoice and then never following up.

3. Make the payment process easy

In your process of setting up an invoicing system, consistency is key for the organization to ensure timely payments and a healthy accounts receivable rate.

In addition to building an internal invoicing system to ensure proper accounts receivable management and timely payments, making it easy for customers to pay invoices will also increase the likelihood of on-time payments.

For example, consider setting up electronic payment methods, such as an accounting or bookkeeping system with electronic payment method options and capabilities for customers. The easier you make it for customers to pay their invoices, the faster they will be paid.

4. Follow up with the customer diligently

Even after you’ve made payments as simple as possible there will always be customers that don’t pay. On exactly the day the invoice becomes past due, start following up with the customer. Remind them of the late payment, so they know you’re serious about getting them to pay.

In most cases, customers will promise to send over the payment as soon as possible, or forward the payment details if payment has already been made. Consistent follow-ups allow you a sneak peek into the status of your receivables, such as if there’s a chance a customer will default, or if they’re simply hitting a temporary financial snag.

Remember that the tone you use with the customer matters! The collection letter you send them 90 days after the payment due date should be sterner than the one you sent when the invoice was just 10 days late. Get a lawyer to draft a reminder letter containing the necessary legal language to make them understand that there are repercussions to not paying their invoices.

5. Review your pricing model

Many businesses are inconsistent in what they charge their clients. Of course, every client’s budget is different and your business may offer different deals or discounts at different times of the year or as part of a referral program. Therefore, every client might be charged differently.

However, it may be time to review your pricing model. Are you charging enough for your products and/ or services? Are you selling your products and/ or services based on value? If you are unsure of what to charge or if you are worried about overcharging, then analyze what your competitors are charging versus the value customers receive from working with your business compared with a competitor.

If your customers believe they are getting a good value by working with your company, then they are likely to pay your invoices on time.

6. Hire a collection agency when necessary

Onboarding a collection agency to deal with late or unpaid receivables should be the last recourse – only if you can no longer handle receivables management in-house or if you’re collecting from customers you’d never want to do any future business with. Some collection agencies tend to be aggressive and can alienate your customers. Or worse, even damage your brand’s reputation.

As such, remember to hire a third party only if your time and money are more valuable than your relationship with your customers.

7. Nurture your client relationships

Having a strong relationship with your clients is one of the best ways to keep your accounts receivables flowing.

Businesses that use polite language when delivering and/ or following up on their invoices, such as “please” and “thank you” go a long way in getting paid in a timely fashion.

In fact, according to an article published by Forbes, FreshBooks performed a study on businesses and accounts receivable. It was found that businesses that use polite language on their invoices see faster payments on an average of 5 percent. Turns out, your "Ps and Qs" matter.

8. Implement a good receivables management software

Enhance your accounts receivable management techniques with technology.  Apruve’s B2B credit management system automates the invoicing process while allowing you 24/7 access to all your records in the cloud. Its invoice financing functionality also cushions your company from the risks involved with extending credit to customers, ensuring you’re paid within 24 hours after the goods are shipped out.

Accounts Receivable Management: From Chaos to Cash

Billing and invoicing can be a pain or a challenge for many businesses, but it doesn’t have to be. By making invoicing a priority, setting up a cyclical system, getting organized, and simply being polite, you will be amazed at how quickly you get paid so you can spend less time on billing and invoicing and more time on doing what you do best: growing your business. 

Looking for a proven accounts receivable management solution? Apruve can help – manually managing an A/R department or refining an existing system can be a challenge, automate instead! Apruve streamlines the accounts receivable management process easier with our credit and AR automation programs. Learn more about Apruve or contact Apruve’s specialists to sign up for a demo today!

Net terms accounts receivable


ABOUT APRUVE

Apruve enables large enterprises to automate long-tail credit and A/R so you can stop spending 80% of your time and resources on 20% of your revenue. We partner with each of our customers to solve their unique credit, payment, and accounts receivable challenges and build the right credit solutions for your markets, customers, and goals. 

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