How to Streamline Your Accounts Receivable Process

Can you honestly say you have a streamlined accounts receivable process?

The answer is a resounding no for most businesses. We find that companies are only 40% confident that their data is complete, recorded, and retrievable.

But for the most part, 35% of companies describe their records and documents as unmanaged and chaotic.

If this sounds like you, then it's time to put organize back into your organization.

Let's take a look at some of the ways you can streamline your accounts receivable processes.

Why It's Critical to Optimize Accounts Receivable

Some business owners fail to see the benefit in actively optimizing accounts receivable. That's because there's no immediate return (in their eyes).

But by doing so, you're able to reduce waste and beef up your bottom line. This is done by minimizing costs and debt and then funding growth.

It's best to start the optimization of your accounts receivable as soon as possible. Waiting too long will only complicate things.

For instance, when you onboard a new client, you want to discuss payment terms right from the jump.

Without a streamlined accounts receivable process, you can run into all sorts of problems. For example, you may mistakenly extend credit to an unqualified customer.

And you may even fail to follow up with customers who have past-due accounts.

Then if accounts receivable fails to apply and allocate cash payments, this can really mess up your books.

If these and other issues arise in your accounts receivable department, then it's time to do something now.

Here's what you can do.

Properly Maintain Customer Data

You're billing customers for your services or products. But how can you send your invoice if their data is outdated?

It's critical to go through your client records to ensure their information is accurate. On that note, it's ideal to audit your customer accounts regularly to search for anomalies that may exist.

For example, duplicate contact details may become an issue when siloed departments record updated information from a recent transaction.

Develop a Simple and Clear Credit Approval Process

If you're in an industry that extends credit to customers, then you need a clear and concise process for approving applicants.

You don't want to provide credit to customers that will stiff you. So a thorough application process is necessary. This should include detailed criteria you look for.

There should also be a credit limit based on the criteria you set.

Create a Seamless Billing Process

When it comes time to send an invoice to your customers, you want it to run as smoothly as possible. Unfortunately, this proves problematic when you're using outdated paper-based systems.

This is why you'll find some businesses switching to digital invoices. There are platforms out there you can use, such as invoicely, to manage your billing.

There are several benefits to using online invoicing tools. For one, you can quickly create invoices using templates. Then you're able to accept online payments from customers.

Once they receive your emailed invoice, they can view the invoice and click pay now. This will enable them to pay the invoice using a credit/debit card or a payment portal like Mollie, PayPal, Stripe, and WePay.

Then monitoring invoice payments become easier. In the dashboard, you can quickly reference which invoices are still pending or past due.

You're able to set up automated payment reminders to ensure they get paid on time.

Create a thorough Billing Terms Agreement

Before you begin working with a client, it's crucial that they're made aware of how your billing process works. This way, they're not caught by surprise and will be less likely to push back.

For instance, you should detail when payment is due, which payment methods you accept, and the penalties for late payments.

Some companies charge late fees, which can be a flat rate or a percentage that accumulates over time. You don't want this in the fine print -- make it known, so they're less likely to miss the invoice due date.

You can also add incentives for early payers. For example, you can give a 5% discount for payments submitted a week or so before the due date.

Speaking of invoice due date, you want to clarify whether you're a Net 30, 15, 10, 7, etc. And be sure to clarify when it starts (the day the invoice is sent or the day of project completion/shipment arrival).  This way, they know how many days they have to pay an invoice once they receive it.

Put all of this into an agreement customers must read and sign before projects commence.

Be Picky About Your Clients

It'd be nice to do business with any and everyone who steps through your doors. But the truth is, not everyone's worthy of doing business with.

If you're in an industry that relies on being paid after you ship products or render services, then you're operating on credit. In this case, you need to be wary of who you do business with.

It's common for businesses to supply references to prove their credibility. So to ensure your clients are worthy, you should perform credit checks and reach out to suppliers they do (or have done) business with.

Don't be afraid to ask for references you can speak with. This is ideal if there are thousands of dollars per transaction.

Send Out Invoices Right Away

Delaying invoices is one way to slow down the process of getting paid. It's best to send out invoices the same day or the day after a project is complete.

Or if you're shipping goods, then it should arrive the day their shipment does. Not doing so will cause customers to forget or lose track of what they've ordered.

Then once they get it weeks later, they may be confused. This will then lead to them tracking down what the payment is for and undergo approval, which will slow down the payment process.

Upgrade to Digital Document Processes

Updating to digital documents is an excellent way to streamline your interactions with customers. From the onboarding stage all the way down to the invoicing stage.

There are various tools you can use to complete this process. We already discussed how you can use platforms like invoicely to streamline the billing process.

Other tools you can use include digital signature platforms like eversign. This enables you to get your billing agreement, and other vital documents signed fast.

With electronic signatures, you can deliver all of your documents via email and have them sign it right away. This hastens the onboarding process so you can get started with your projects or shipments.

Invoicing software makes it easier for the accounting department to manage billing processing.

Eliminate Late-Paying Customers

Over time, you'll begin to see a pattern in customers who pay late. It's ideal to look through your books to conduct audits to figure this out.

You can write down a list of the customers who are chronic late payers and then cut them loose. You don't want to keep clients who are going to slow down your cash flow.

Some companies are wary about "firing" their clients because they're afraid of losing money.  But what if these late payers stop paying altogether? You'll lose even more money in the long-term.

Have a Plan for Handling Debtors

So what will you do when you have customers that fall into debt with your company? You need a strategy in place for handling these matters.

A systemized approach to handling your invoices is recommended. For example, you should send out payment reminders on the same day for every customer (i.e., 3, 7, and 10 days after an invoice is sent).

When a payment is late, you need to reach out to customers to find out what's up. You can start with an email and then follow up with a phone call if you don't receive an email reply.

What this will do is set the tone for what it's like to do business with your company. All new and existing customers will understand your process and what to expect.

Then if you run into customers that fail to pay after several attempts to collect, you have to decide on how to escalate the matter. Will you turn to legal actions or hand the account over to a debt collection agency.

Start Revamping Your Accounts Receivable

With these tips, you can transform your accounts receivable department into a streamlined organization. It's great to have tools and processes in place that help your AR team handle business better.

The next step now is finding those tools to implement into your company.

If you're interested in going digital, then we invite you to give invoicely a test run. You can sign up for free and then upgrade to unlock all of its features.

Have other ideas for improving accounts receivable? Then let us know about them in the comments!