What Is the Ideal Accounts Receivable Process?

Nicole Dwyer
The ideal accounts receivable process

Cash flow is a serious problem for many businesses. In fact, one study found that 82% of companies that were forced to close their doors attributed their downfall to cash shortages.

Even businesses that might not be experiencing current cash flow problems can still be affected by them. A recent report, for example, found that 60% of small businesses worry about cash flow on a monthly basis. Even if cash reserves hold up, these companies are wasting a lot of time and energy thinking about their financial situation.

One of the best ways to avoid cash flow problems is by streamlining your accounts receivable (AR) process to increase the chances of faster payment.

There isn’t really a one-size-fits-all accounts receivable policy. A process that works for one company might not work at all for another—particularly in different industries or different geographies.

Every business typically has its own formal AR policy—complete with established, documented workflows that determine when and how much to bill customers each month.

Unfortunately, having a well-defined AR process in place and actually executing it are two different things. For a number of reasons, accounting teams probably don’t always follow procedures. Maybe some of them think their own approach is faster and more efficient than company policy, while others are too busy to do things by the book and some even forget to follow procedures altogether. There are also those who might not know policies exist.

Ensuring the financial vitality of your organization starts with implementing an AR process that enables you to get the cash you’re owed on schedule. While your company is unique and should develop an approach that makes sense for its specific situation, consider these best practices while you’re creating your own process.

  • Determine when invoices should be sent out. Should you bill your customers at the end of each month or does it make more sense to bill them immediately after a service is rendered or a product is shipped? Once you’ve figured out when you should invoice customers, consider using accounting automation tools to expedite the invoicing process and reduce the likelihood of human error that slows down payments.
  • Make it easy for your customers to pay. Don’t make your customers send you checks through the mail if they’d rather pay you electronically. Instead, give them as many payment options as you can to eliminate any obstacles that might prevent them from paying you faster.
  • Decide whether you’ll offer early payment discounts and late payment penalties. It's likely that you will be able to speed up some payments by offering early payment discounts. For example, you might offer the terms 2/10 n/30, giving a two percent discount to customers that pay within 10 days and expecting the full balance from those who don’t within 30 days. On the flip side, you can tack on late payment penalties, for example, 3% per month, to discourage clients from thinking they can wait longer than 30 days to pay you.
  • Figure out how to maintain up-to-date customer data. Let your finance and sales teams work together to make sure customer data is always accurate. That way, credit is never extended to a customer who owes you payment on several outstanding invoices.
  • Develop a slate of measurable KPIs. You’ll want to track the number of invoices outstanding, how often your customers take advantage of early payment discounts, how many customers were given unapproved discounts, and how often members of the sales team override standard terms, among other things. You’ll also need to determine how frequently KPIs should be pulled and who should own that task.
  • Assign responsibility for following up on late invoices. You need to put someone in charge of following up with customers when their bills are past due. A week or two after a due date passes, have that person reach out to the customer with a gentle reminder that payment is late. Be persistent. A few polite follow-ups can make a real dent.

While there’s no such thing as a “perfect” accounts receivable process that will work for every organization, you can leverage these best practices to get a head start on creating one that works well for your company.

With the right process in place, your organization will collect payments from more customers on schedule, helping you avoid cash flow problems while giving you more time to focus on growing your business.




Nicole Dwyer
About the Author

Nicole Dwyer is Chief Product Officer for YayPay, bringing more than 10 years’ experience in accounts payable and receivable technology to ensure YayPay continues to meet the needs of its customers. Having spent her entire career in commercial payments, Nicole understands high- and low-value payment systems, the complexities of how businesses pay and get paid, and has worked with distributed teams spanning the globe. She is a graduate of Worcester Polytechnic Institute. Residing in New Hampshire with her husband, daughter, and son, they spend their time outdoors and creating new adventures.

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