If you don’t know your accounts receivable process inside and out, it doesn’t matter how good a salesperson you are. You can be on top of your game day in and day out, but until you figure out how to manage the process that comes after the sale, and the bookkeeping that goes with it, you’re never going to be able to grow.
When it comes to the accounts receivable process, there are a few things that you need to know about to improve your workflow. Those are:
- How Long It Takes You To Get Paid
- What your payment terms are
- How Much Money Is in the Cycle When It Comes To Getting Paid?
How Long It Takes You To Get Paid
When you’re trying to improve your accounts receivable process, the first thing you need to look at is how long it takes for invoices to go unpaid once sent out. If you’re in constant contact with customers and customers who have previously purchased from you, you probably know that it takes about 30 days or so for them to pay your bill after the fact.
What does this mean for you? When was the last time that your customers paid what they owed? If you haven’t checked in on it in a while, stop and do so now. Has it been more than 30 days since they paid? Then you need to adjust how long the process takes. If it’s taking longer than 30 days, you need to try and require that they pay earlier in the cycle. If it’s taking less than that, you should probably consider a way to speed the process up.
What Your Payment Terms Are
There are many different kinds of payment terms that you can offer your clients. Some require no money upfront, while others require full payment before any work goes out. Whatever payment terms you decide to go with, it should be something that makes sense based on your industry and what your clients are willing to agree to.
What does this mean for you? The payment terms that you offer should be something that your clients are willing to agree to. If they aren’t, you need to think about changing the terms until you find something that both of you can agree with. This is one of those things where if you settle, all parties come out unhappy.
How Much Money Is in the Cycle When It Comes To Getting Paid?
If you’re wondering how much money should be in various stages of the accounts receivable process, here is a rough outline:
Invoices – No money should be sitting at this stage at any time.
Credit Card Payments – This depends on your credit card processor. Most chargebacks are handled by the merchant, with the processor handling disputes.
Payment Schedules – This is the timeframe in which payments should be due. It’s essential to know your customers and their payment schedules so that you can create a timetable for when their payments should be received.
Payments – Once they’re received, this is how much money you get. Some companies may only allow for partial payments or require an entire payment to come in before they pay anything out.
What does this mean for you? If you’ve been paying your company’s bills, you should know how much money is sitting in each of these stages. Once you do, you can work on optimizing the bookkeeping process based on this information.
Luckily, there are some tried-and-true ways to improve your bookkeeping process that anyone can implement with some deep thought and some elbow grease.
Here are Elevate by Welch’s 8 tips to help you get started:
1. Determine the optimal collection process for your business
First, figure out what sort of collection process will work best for your company. Do you need to offer customers a series of payment plans? Will it be better to take a more aggressive stance and set firmer deadlines? There are several factors involved in making this decision, but the most important is your customer base. Are they capable of handling a complex AR system, or is it better to keep things simple? The answer will vary by industry, but most businesses find they can remain competitive with straightforward policies and minimal stress on the AR side.
2. Establish a payment due date
Once you’ve determined how aggressively to pursue the AR process, the next step is to set a payment due date. This can be helpful if you’re offering customers an extension since it will help them understand when they should expect to pay off their balance. You may still wish to provide some payment plan or extension in certain situations, but having an official due date in place can help prevent undue stress for all parties involved.
3. Utilize email reminders when necessary
If your customers fail to make payments by the due date, it’s time for a gentle reminder via email. You can’t be too pushy or hound your customers via email. However, politely asking for payment by a specific date can be effective at getting some customers to pay up on time. Keep in mind that some customers will need more time, but others are perfectly capable of paying up without much hassle.
4. Offer payment plans when necessary
For some customers, establishing a due date isn’t enough to get their payments in on time. If you need to offer payment plans on occasion, don’t hesitate to make it clear how these plans work and whether there is any penalty involved if the customer doesn’t pay off the balance in the allotted amount of time.
5. Evaluate and adjust your collection process as needed
If you find you need to change your AR collection policy or procedure, be sure to evaluate the situation and make necessary adjustments as necessary. For instance, you may find that a more aggressive approach works better than a more laid-back approach if your customers are slow to pay off their balances. Make the changes accordingly and continue trying new strategies until you find one that works best for your company.
6. Assess your operations with regards to AR processes and controls
As part of an overall systems audit, assessing how effective and efficient the account receivables process is within your company is explicitly also beneficial. What are the strengths and weaknesses of this process? What process improvements can you make to improve collections? By looking at these questions objectively, you can use this information to refine your AR process even further.
7. Automate your AR processes where possible
If you have the resources, it can be helpful to automate your AR collection process as much as possible. This is because automation simplifies the collection process considerably, allowing you to collect payments with ease and ensure that all documentation is readily available for auditing purposes if necessary
Check out some automation tools for this like AR Collect or Chaser
8. Give customers an incentive to pay off their balance.
As a final tip, remember that you can also give customers an incentive to pay off their balance as quickly as possible, so long as it doesn’t run afoul of the law. You can offer discounts or other perks for specific customers who are willing to pay off their balance within a specified time frame. This will save you money in the long term, and it’s likely to appeal to customers looking for a deal.
Over time, you’ll find that your AR management strategy becomes more streamlined and efficient with every improvement you make. This leads to greater profitability over time, resulting in overall business success.
Not sure where to start? Get in touch with us today. We can help you find the answers to these questions and more so that you have the right information to make smart business decisions.
