We talk about bad things about AR. Let’s talk about what happens when you stop receiving payments on time. Checks roll more slowly, companies have less work to do, banks are more worried, and the people who owe you money get more influence because they’re desperate. Maybe you’re lucky and things will come back or someone will buy you back and maybe you’re out of luck and the doors will close. Read more about What are the steps to good accounts receivable management?
Paying on time is key to maintaining lighting. Creating a good accounts receivable management program will make things easier.
Involvement in accounts receivable management includes everything to ensure that customers pay their bills. Good accounts receivable management prevents overdue or unpaid payments. Therefore,
it is a fast and effective way to strengthen the company’s financial position or liquidity. This article explains the importance of good AR management, steps for good AR processing.
The importance of good accounts receivable management
Every company wants to buy low and sell high. However, with bad accounts receivable management, you can lose everything in the final stages of the sales process (payment). More than half of all bankruptcies are due to poor accounts receivable management, which demonstrates its importance.
Accounts receivable management is more than just reminding customers to pay. It’s also a matter of determining the reason for the non-payment.
Products or services may not be delivered? Or is there an administrative error on the invoice? Good accounts receivable management is a comprehensive process that includes:
- Determine customer creditworthiness in advance
- Scanning and monitoring of credit risk that customers frequently perform
- Take care of customer relations
- Early detection of late payments
- Timely complaint detection
- Decrease in total balance (DSO)
Bad credit avoidance for unpaid accounts
Now let us see the steps for good AR management
If you are a company that sells goods or services on credit, chances are there is a lot of money on your balance sheet that is idle. Solid cash flow is essential to improve operational efficiency. One of the ways to remove the retained money is through effective accounts receivable management (AR).
AR is the amount you have to legally pay, the amount that you have worked so hard. Therefore, it is advisable to take every possible action to ensure that your customers pay on time.
- Clarify payment terms from the start: When it comes to managing your AR and debt collection processes, leave no room for guesswork in the first place. Take time to sit down with the customer and explain your guidelines.
- Answer any questions or confusion so that you are on the same page before completing the agreement. The loan agreement should be very clear about the terms of your payments and whether late payments will result in penalties.
- Send reminders on time: It happens all the time. The customer forgot an invoice that was nearly due because it was sent to them three weeks in advance. Sending invoices early is great, especially if you’re using snail mail instead of email. However, please also note that many things can happen between sending an invoice and the due date.
- So send them a bill reminder a week or at least three business days before the due date to make sure they don’t forget. With this reminder you can also confirm whether the invoice has actually been received. If not, take appropriate action, e.g. Send them another invoice the next day by email, fax, or courier, whichever is applicable.
- Follow it carefully: Contact the customer on the day the bill expires. Remind them of late payments so they know you’re serious about getting them to pay. In most cases, customers promise to send payment ASAP or send payment details when payment has been made. You can see the status of your claim through the sequential follow-up actions.
- Fasten if necessary: Reminders and follow-ups will help your customers understand that you take payments seriously. But when the urge comes, be prepared to harden. They lost their hard-earned money, not them.
- The tone of the pick-up letter you send 90 days after the due date should be stricter than the one you send when the invoice is only 10 days late. Have an attorney prepare reminders in the necessary legal language so that they realize once and for all that failure to pay will cost them more in the long run.
- Solve the problem: Customers don’t always try to trick you when they can’t pay on time. They can also have problems with their claims. If these aren’t the constant headaches of customers, do your best to keep the relationship going while you try to take your money. For example, offer them a simpler payment plan;
- B. Extend from 30 net accounts to 60 day terms and other similar options.
- Contact a debt collection agency for assistance: Involving debt collection agencies in handling overdue or unpaid accounts receivable should be a last resort – only if you can no longer handle debt management internally or if you cash out with a customer you don’t want to do business with in the future. Some debt collection agencies tend to be aggressive and alienate their customers. Or worse, damage your brand reputation.
Conclusion of accounts receivable management
A variety of factors can hinder the success of your AR management process, including flawed dispute resolution processes, poor follow-up, difficult technology tools to use, and even communication gaps.
However, there is one thing that cannot be stressed enough: maintain good working relationships with your customers. Satisfied customers are more likely to prioritize payments to companies that consistently perform better than expected.
By automating accounts receivable management, you can connect all of the above systems. This increases workflow efficiency and provides a better view by generating cash flow and customer reports.