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Accounts Receivable Best Practices 


Managing cash flow is considered one of the most important practices within a business. A very common cash flow problem is controlling accounts receivable. Accounts receivable is money owed by customers to another entity for goods or services that are not yet paid for. Customers may purchase a product with credit, but at times businesses may not receive their payment in a timely manner. This can cause companies to draw from their own cash reserves or increase their own financing. Having control of accounts receivable can really help a company stay healthy and have more cash available for business activities. 

Following this best practice step-by-step should improve the receivables business process and improve cash flow: 

Step 1: Choose Trustworthy Customers This is the first step in starting a healthy receivables process. Choosing a customer that you can trust that will be able to pay you back in a timely manor is key. One way of taking this step a bit further would be to demand credit checks on customers to confirm their ability to pay. This will take most of the uncertainty out of receiving payments. After you establish these trustworthy customers then you can implement a statute saying that after two times of missing a payment then you are done doing business together. This will help ensure that you only do business with people who are honest, and will make sure you are being paid on time. 

Step 2: More Efficient Sales Process The next step in creating an efficient receivables process is to create a similar, more efficient sales process for every customers. My first thought to help provide more efficient sales would be to shorten payment terms. With the ease of Internet connection, it is now easier than ever to have payments due upon receipt instead of giving excess time such as net 30. This will cut out lag time and make the customer pay at the quickest possible opportunity. To accompany this idea is allowing customers to make direct deposits to the company through Electronic Funds Transfer. This will get rid of a lot of confusion and send the payment immediately into the company's funds. Also another strategy to encourage early payments through direct deposit is for a company to offer discounts for on-time payments. This should make clients less likely to miss out on a discount when they are going to have to pay the bill anyways.1 

Step 3: Invoicing The first major move with invoicing is to send invoices over email. This will avoid mail delays that may cause companies to not receive an invoice on time, or they can rely on this as an excuse for not paying on time. After you have sent an email, confirm that the customer has received the invoice through a phone call. This will engage them in conversation, which is the easiest way to find out about a payment. A phone call will keep the customers accountable and should be used as a last step to make sure they know they need to pay. Another effective tool with invoicing is keeping a collections record. This will help businesses to maintain a log of over-due accounts, and when follow up calls and emails were made along with when to make them again. This will keep the company on top of bad customers and hold them more accountable. Another way if you are unable to collect a sum of money from someone, then using a collection agency will help you gain some of the money you lost on this customer. This is a more drastic step, but can be very effective.

Step 4: Cash Receipts and Reconciliation If you have stayed efficient through the process the reconciliation should not be very different. However, if you did not keep up, looking at credit and accounts receivable tracking and workflow systems that help manage the entire credit cycle will help make sure that accounts match. Creating a system for accounts receivable tracking will help keep the company up to date on credit cycles, and help find the holes in the system. This is where keeping accounting accuracy is and checks and balances are most important. Reconciling receipts helps keep the books exact under accepted laws.

Keeping accurate accounts receivable is very important and generally is not a problem if you have trustworthy clients. Problems can be avoided if you have a strategy like the above best practices. These best practices take into account things like checks and balances, integrity of information, worker efficiency and accounting accuracy. Overall, keeping accurate and efficient accounts receivables help a company stay healthy. 

By: Hunter Arno 

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