Review Your Accounts Receivable Procedures
October 14, 2015 at 6:25 PM
Accounts Receivable policies can dramatically affect cash flow. Review your AR processes on a regular basis and consider this list of "Best Practices".
- Establish a credit policy. If you offer credit to consumers, establish credit requirements that are comfortable to you, but also offer the consumer an incentive. If you offer too much credit and/or to consumers with poor credit histories, your cash flow will suffer. On the other hand, if you DON'T offer credit, you may lose sales. You need to find the right mix.
- Shorten payment terms. If you work on a net 30 basis, you may want to consider a net 15.
- Offer early payment discounts. Discounts are a great incentive and can work for almost every type of business. Be careful, however, if you accept credit cards. Discounts plus credit card fees may reduce your profit margin to an uncomfortable low.
- Eliminate barriers to payment. Provide payment method options: Cash, Check, credit card, by phone or online, monthly payment plans, etc.
- Bill promptly and electronically wherever possible. Note, however, that if you bill via email only, the bill can easily be missed. Request a “read” receipt and better yet – follow up the email with a mailed hard copy (note on the hard copy that email was also sent so they aren’t confused that they have two bills in your system).
- Use new technology to automate the payment processing function or to improve existing automated processes. Technology changes fast! Review and improve your processing functions to prevent frustration for your customers.
- Establish a billing dispute resolution process. Train your staff to be pleasant and helpful and to document the dispute at every step. If your billing is well documented and billing descriptions are clear and easy to understand, a dispute can be easy to resolve.
- Establish a proactive collection process with early intervention. Send out bills and statements on a timely basis and don’t be shy about letting the consumer know the bill is past due and needs to be paid or it will be sent to collection.
- Offer incentives to billing/collections personnel. This may be a little controversial. Train your staff to be respectful but convey a sense of urgency and ASK for a commitment to pay. Then – reward them for a great job. Asking for money isn’t easy!
- Monitor ARs on at least a monthly basis. Reviewing you AR aging can help you identify red flags so you can adjust your billing policies.
Category: Accounts Receivable Management
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