6 Tips in Creating a Solid Accounts Receivable Process for Your Business

In business, accounts receivable (AR) is the term for the outstanding invoices that a company has or the amount of money that’s owed to them by customers for goods and services already rendered. The AR usually comes in the form of a line of credit that must be paid in a relatively short timeframe, just like an IOU that should be paid off as soon as possible. However, ARs should not to be confused with accounts payable or AP. Whereas APs involve a business’s debt to its suppliers or partner vendors, ARs involve a debt to be paid by customers to the business after a sale.

Unbeknownst to some businesses, maintaining a solid process for handling ARs can be a competitive advantage. The option to take on credit can be extremely enticing to would-be customers, and it can give them the incentive to transact with one company over another. Indeed, it might even be more beneficial to offer AR arrangements, given the following factors for both you and your customer:

• Fast and efficient payments
• Avoidance of overdue payments
• Dependable cash flows
• Traceable AR processes

If improving your accounts receivable system is one of your business priorities this year, here are six tips that can help you achieve that:

1. Have a collection plan and payment terms in place. If your company’s finance and accounting team does not already have a flowchart in place for AR collections, now is a good time to draft one. The collection plan can detail instructions of which customers to bill, how to label transactions as one-time occurrences or frequent ones, and what penalties or interest rates to ascribe in case of overdue payment. Once these terms are clear to the people in your business, put them on paper and make them accessible to your customers. That way, everyone will be on the same page about completing ARs.
2. Send invoices right away. The sooner you can send your customers invoices post-rendering of goods and services, the better your chances of securing payments on time. You should already anticipate that some customers may take a long time to pay”so don’t increase your own probability of getting paid late.
3. Open up several different payment channels to your customers. Sometimes customers have difficulty paying on time because they have trouble accessing just one method of payment. The solution is to offer several avenues for them to pay. Generally, they should have the option to complete payment through traditional methods (bank transfer, credit card, remittance) or through digital payment methods (PayPal, etc.). More options means greater convenience to your customers and consequently, fewer excuses for them to pay late.
4. Institute plans to contact late payers. Decide on a threshold for late payments before you start contacting customers who are behind on theirs. Have your accounting team agree on a timeframe to contact late payers (five days after the due date, one week after the due date, and so on), plus the default method of contacting them (whether it’s via email, cellular phone, or landline). 
5. Keep track of habitually late payers, and tailor your approach to them accordingly. If your customers fall into the bad habit of paying late, then your business could lose money and suffer hiccups in your immediate cash flow. Prevent this from happening by discouraging late payments”shorten the timeframe for payment, lessen the late payer’s available credit, and the like.
6. Scale up your AR processes as needed. For small customer bases, manual entry of ARs using simple tools like spreadsheets will suffice. But if this base is quickly expanding, it may be time to scale up the infrastructure used for ARs. For best results, consider hiring a dedicated accounting officer to specialize in the process, or invest in accounting software to do the job. This ensures that the task of managing ARs is done in an accurate and timely fashion.

The last thing you need to do to improve your accounts receivable process is to make sure that your current system is working. If your sales, customer base, and range of products and services has significantly changed”and your way of managing ARs isn’t enough”don’t forget to adjust your approach. With a good system in place, ARs will become less of a hassle and even become a source of future opportunities for your company.