Account receivables refer to the money owed to a company by a customer. It is registered when a customer when a specific customer or client avails the services of a company without making the payment upfront. Simply put, any payment classified as outstanding is recorded under the accounts receivable process.
In this case, the money owed to the company becomes an asset and is entered under the receivables section. Account receivables are treated as current assets on the company’s balance sheet.
In the case of the account receivable, the company generates the sale when the invoice has been issued. The company concerned may extend the payment time, depending on the service and other factors, where an additional period of 30 days is offered to the final customer to clear the payment.
Methods to Manage Account Receivables: The Key to Save Time and Resources
As already discussed, account receivables are the company’s assets and should be managed efficiently. They add to the company’s profit and should be diligently taken care of. It is also important to manage them well because if the record is disrupted, it will create a serious problem in the company’s balance sheet. Thus, account receivables should be managed well to save time and resources.
The following are some methods for account receivables management:
Implement clear credit policies
The guidelines to purchase the service on credit should be made clear to the customer to avoid any confusion in the future. The credit limits and deadline to submit the credit should be well discussed between the company and the customer. The consequences of late payment should be discussed beforehand.
Conduct credit checks
Before extending credit to the customer, his/her reliability should be checked. Thoroughly check the payment history and creditworthiness of the customer. Only reliable customers should be given credit; otherwise, the company would suffer.
Send timely invoices
Send the invoice to the customer as soon as the service is delivered to encourage the customer to make payment in time.
Offer multiple payment options
Nowadays, there are many options for making payments. People are comfortable with different payment methods, so ensure you include all the payment options, such as online payment portals or electronic funds, to maintain smooth cash flow.
Set up automated reminders
Sometimes, the customer might forget to make the payment. It is the duty of the service provider to remind the customer to clear their dues. The company can set up automated systems that remind customers to pay on time. It also reduces the time and effort utilized in manual follow-up.
Shorten payment terms
The payment terms should not be complex as it would confuse the customer. Offer discounts on early payment to encourage the customers to make payments as soon as possible.
Use electronic invoicing and payment services
To fasten the paperwork and account receivable services, use an electronic mode of invoicing and payment.
Institute late payment penalties
The company should clarify the penalties for late payment to the customer and should strictly adhere to the penalties. This would compel the customer to make timely payments.
Outsource accounts receivable management
The management of account receivables can be outsourced to trusted companies like the back-office accountants who deal with everything related to the account receivable process, and they make sure you get the amount before the deadline. It is an efficient method to streamline account receivables.
Monitor aging account receivables
Regularly monitor the aging account receivable report to check the overdue or detect customers who need immediate attention regarding payment. This will help you to keep a check on defaulters.
Offer settlement discounts
If a customer is willing to pay the past due invoices in full, offer a discount to clear the outstanding balance.
Maintain strong customer relationships
The company should develop a strong bond with the customers. The company should offer excellent services and maintain consistent customer communication to encourage them to make faster payments. Such a bond also helps to resolve payment issues with mutual understanding.
Conclusion
Account receivable is indeed a tedious job that requires diligent attention. It also demands time and resources extensively. However, not all firms have professionals to deal with this process. Back Office Accountants are the solution for such companies. The expert team at Back Office Accountants offers effective solutions that make accounts receivable management convenient. Check the official website of Back Office Accountants today to avail more information about the premium services.
