Accounts Receivable is the cash balance owed to any company for goods or services provided and used but have not yet been paid for by the customer. Efficient and effective money management is at the core of the Accounts Receivable (AR) process. How well you handle your company’s AR and AP directly affects your cash flow and bottom line.
Accounts receivable management is crucial to maintain control over your payroll, debt payments, and fuel for future business growth. Any well-laid-out process for accounts receivable will be able to allow you to anticipate and eliminate threats to your cash flow before you take on the risk. You have to be able to rely on your process to make good decisions regarding the financial health and well-being of your company.
Accounts Receivable Strategy
The measure of success in effective AR management is in the result: payments are collected on time. If you have too much money tied up in receivables at any given time, you may fail to meet your financial obligations. Fortunately, by having a well-planned and executed accounts receivable strategy in place, you can avoid using financial reserves or going into debt when bumps in the road eventually occur
Since most businesses go bankrupt due to a lack of capitalization, accounts receivable is one area that can significantly contribute to the ultimate success or failure of any company. Presumably, you are already out of pocket for the materials or labor you gave to your clients, whether product or service you provided to incur the receivable. Even the best-laid plans can be punished when an economic downturn causes your receivables to go unpaid.
Because receivables are considered assets, you must be careful about how you manage your system of obtaining payment for debts owed. The last thing you want is to write off those assets as uncollected debts. Using an automated tracking system or choosing to outsource some parts of the accounts receivable process such as printing and mailing can help speed up turnaround time to make your AR process more efficient.
From Credit Rules to Collection Plans
Keep in mind that offering a product or service to be paid for after rendering it in a few weeks or months is essentially the same as offering credit just like a bank or credit company. That gives you some right to ensure that payment will be made promptly. It is only right that you should put in place a system for tracking and enforcing payment that is respectful to your client while protecting your net worth.
In general, there are five steps to managing your accounts receivable. From knowing your debtors to monitoring collection, the most well-managed process includes focused attention, good record-keeping, and persistent follow-up. No matter what kind of system you set up, it should be consistently enforced with streamlined precision.
1. Establishing Credit Rules
Assess risks before granting credit. Put every client through the same credit determination process, be a good judge of character. Be comfortable determining the creditworthiness of each client. Get referrals, recommendations, bank guarantees, in addition to signed contracts for each client; balance generosity with prudence.
2. Creating Terms and Conditions Document
Be clear about your payment terms and expectations. If you charge interest or late payment fees, you should be firm but flexible with your payment policy. Use quote templates. Make sure your customer understands your policy. Have them sign a contract when appropriate. Keep all documentation for every client, including emails, texts, voice messages, and forwarded documents.
3. Creating Invoice Template and Sending Consistently
Make sure to send an invoice immediately after services are rendered. Ensure all info is correct and up to date. Always create it to look professional and easy to read with a logo, address, phone number, project name, and invoice number. State payment terms and methods acceptable. Monitor the process carefully. Send timely reminders. Make sure that communication is planned and executed on a regular schedule.
4. Prepare An AR Report to Measure the Liquidity of Receivables
Your liquidity should be easily measurable and regularly reported and estimated. It becomes part of your business’s worth and worthiness as a business. Being able to quantify it through reporting process should be a regular part of your AR plan. You should be able to quickly assess your receivables on-demand, as well as weekly, monthly, quarterly, semi-annually, and annually.
5. Creating Collection Plan
Make a plan for how you will handle delinquent accounts. Start with determining reasons for the late or missing payments. Look into the situation with each person. Always assume that your clients want to pay but have overlooked the bill, or forgot, lost it, or had a family emergency that made it impossible to pay on time. Attempt to set up a payment plan to help them. Have a collection agency plan if the situation cannot be rectified through your efforts.
If an invoice goes unpaid for 60-90 days, the chance that it will become a bad debt is quite high. Bad debt is the worst-case scenario because though you get to write off the income declared, you have already provided the goods or services, meaning you have lost time, money, or both. A net-zero on your books from the write-off is a quantifiable loss to you and your business.
That is why it is so important to have a credit determination process in place before you extend credit to anyone. It is your right to refuse service to those that repeatedly make late payments. Legal ramifications to those that create bad debts for you can be determined with the help of an attorney.
Get The Help You Need
Accounts Receivable is not a complicated process. With diligent tracking methods, clear communication, constant reviewing, and bringing in support for collection when needed, you have the potential framework for a healthy accounts receivable business structure. Once you have your methodology in place, you can monitor and evaluate the success of it by seeing how your money is flowing.
Additional support can be gained by outsourcing your accounts receivable invoice printing and mailing with a printing and mailing specialist such as Towne Mailer. By partnering with us, you can eliminate some of the most labor-intensive aspects of your accounts receivable process. Outsourcing is a proven effective way to save money, time, and energy in-house by bringing in a specialist to help.
Who Are We?
Towne Mailer has been helping businesses of all sizes to upgrade their printing and mailing services with one of the leaders in the field. With over 20 years of experience providing the most extraordinary services in the industry to clients all over the country makes us uniquely able to surpass other printing and mailing companies. Located in our 7,000 state-of-the-art printing and mailing facility in Missoula, MT, we are your trusted accounts receivable invoice preparation partner for life.
Reach out to us today for a free, no-obligation quote on how we can help take a load off your business and assist your cash flow issue after just one printing. Our talented team of print experts can get your business back on track by offering first-class printing and mailing quality as well as excellent customer service along the way. When you rely on Towne Mailer to relieve you of the burden of all the accounts receivable tasks, you can get back to your business and leave the paperwork to us. For a small investment, we’ll save you time, effort, and money.