How to build an accounts receivable process

Managing accounts receivable well helps your business make more money and have enough cash to operate smoothly.

If done well, you'll get paid on time, keep clients happy, and have enough money for your business. But if managed poorly, you may waste time, make mistakes, lose money, and have cash flow problems.

Use these 8 tips to improve how you manage money owed to you and make collecting payments easier.

1. Use Electronic Billing & Online Payments

Forget about using paper, mailing bills, and writing paper checks. They can easily get lost and take up a lot of time to manage. Instead, try using an electronic invoicing system that allows clients to make payments online easily. Combine your billing and payments. Forget about paper, mailing bills, and writing paper checks. They can get lost and take up a lot of time. Instead, use an electronic invoicing system. This allows clients to make payments online easily.

Combine billing and payments to automate record-keeping. This makes it easier to keep track of everything and reduces mistakes. Use invoicing software with payment processing. Clients can click on their bill to make a payment, and the system will record it automatically. Set up reminders for late payments to stay organized and collect payments on time. Provide personalized communication to each customer without wasting time. Use invoicing software that includes payment processing.

Stop using paper, mailing bills, and writing paper checks. These methods are time-consuming and can easily lead to lost documents. Instead, consider using an electronic invoicing system that allows clients to make payments online easily. Combine your billing and payments to streamline your record-keeping process. This will help you keep track of everything more efficiently and reduce the likelihood of errors. Utilize invoicing software with integrated payment processing.

This allows clients to make payments with a simple click on their bill, which will automatically be recorded in the system. You can also set up reminders for late payments to help your business stay organized and ensure timely collections. By using this system, you can provide personalized communication to each customer without wasting time, ultimately improving your business operations. You can also set up reminders for late payments. Forget about using paper, mailing bills, and writing paper checks. They can easily get lost and take up a lot of time to manage.

Instead, try using an electronic invoicing system that allows clients to make payments online easily. Combine your billing and payments to automate your record-keeping. This will make it easier for you to keep track of everything and reduce the chances of mistakes.

Use invoicing software that includes payment processing. Clients can simply click on their bill to make a payment, and the system will automatically record it for you. Set up reminders for late payments to help your business stay organized and ensure that you are collecting payments on time. This will also provide personalized communication to each customer without wasting any time.

2. Use the Right KPIs 

To make sure your accounts receivable processes are functioning properly, keep track of these AR performance metrics:

• Days Sales Outstanding (DSO): The main goal is to improve processes to lower DSO, which is the average time to collect payment. Try to keep DSO under 30 days for better results.
• Average Days Delinquent (ADD): This shows how long clients are late with payments on average. You should aim to keep this number low. This shows the average length of time clients are late with payments. It is important to keep this number low. If the average time increases, review your procedures. Make sure billing is going smoothly and that you have enough staff to handle collections.
• Turnover ratio: This number tells you how fast you are getting money from customers and shows your cash flow. Aim for a low number. A high ratio means you have many unpaid accounts, so check your billing and collection methods.
• Collection Effectiveness Index (CEI): This shows how many accounts you collect payment from. You should aim for a percentage close to 100, which means you are getting paid by all your clients.
• Revised invoices: Try to minimize the amount of times you have to change customer invoices. Try to reduce the number of times you need to change customer invoices. If you see more revised invoices, check your billing procedures. Consider hiring more staff to avoid errors that can delay payments.

3. Outline Clear Billing Procedures

Approach your billing process with clarity and consistency. Document the process, so everyone in your company follows the same procedures.

Your billing process should include the following:

• Billing periods and invoicing dates.
• What information to include on each invoice (e.g. Purchase Order numbers, addresses, etc.)?
• Recordkeeping procedures.
• Periodic AR process assessment and follow-up.
• Collections procedures for overdue payments.

In addition to the daily, weekly and monthly steps you need to follow to bill clients accurately, include in your documentation:

• Billing contact information for each client.
• Unique billing details or steps for each client, if applicable.
• Payment details and notes for each client.

4. Set Credit & Collection Policies — and Stick to Them

You might want to offer credit to customers. If you do, make clear rules to avoid giving too much credit. Make it simple for your team to decide if a customer can have credit. Also, have clear policies for collecting accounts receivable. This helps you deal with late payments and work more efficiently. Focus on being proactive, not reactive. Instead of chasing late payments, send reminders before they are due.

This gentle approach helps keep communication open with your customer and makes sure they know about any upcoming payments. Remember, every interaction a customer has with your business is a chance for you to remind them in advance.

If a customer has many overdue invoices, remind them of all when you send the latest one. This helps make collecting payments easier and prevents confusion for the customer.

5. Collect Payments Proactively

With clear procedures in place, you can be proactive about collecting payments. Create a process where you’re prompted to contact a client on the first day a payment is late, so they’re aware of their payment terms and any overdue balances immediately. Make sure to clearly outline the steps on how they can make a payment.

Electronic billing and payment systems can help centralize and resolve invoicing and payment matters with your clients. For example, you can set automatic follow-ups with clients the first day a payment is late, then once each week until the account is settled.

6. Set up Automations

Save time and keep things consistent by automating client communications and cutting down on manual tasks whenever you can.

The key to AR automation is to automate the most tedious tasks in the process. This typically includes preparing emails (reminders, follow-ups), pulling out invoices, etc. Automate anything repetitive, time-consuming, and low value added. Your finance team should focus on customizing customer messages and sending invoices and reminders promptly. This is key to getting paid on time.

An account receivable management software can handle this for you. You can create an email to send with an invoice, a thank-you email for payment, and reminders for overdue payments.

Many companies only send a customer a balance or statement without showing the unpaid invoices. This can be confusing for customers. It would be better to automate this process, perhaps through a customer portal or software. This way, customers can see what they owe and when they need to pay. It's also helpful to offer online payment options to make the payment process faster.

If you use paper billing, you can still automate your communications to save time and streamline your process a little. Use integration software like Zapier to set up triggers to contact clients based on inputs into your records. For example, set up a form email to send to a client when you enter into a spreadsheet that you’ve received a payment. Or create an item in your to-do list to print and mail a receipt.

7. Make Payments Easy for Customers

Most payment issues you’ll encounter are because clients have trouble receiving, viewing, or understanding your invoices, or because they don’t have access to a quick and convenient payment method.

Did you know that 70% of payment reminders are technical and not commercial? So the real issue here is not about the actual transaction but the method of payment. If you want to get paid, it needs to be a straightforward thing to do. Remove any roadblocks in the customer payment experience and streamline the process.

The solution? Set up a system that partially automates your AR process and makes it easy for customers to pay you. Consider adopting a payment portal that allows you to structurally communicate all the information your customers need in one go (amount due and method of payment).

There is a common misconception that late payments mean that a customer is a bad payer. This is often not the case. If your business is consistently receiving late payments, it means your invoice and payment strategy are broken. How do you fix this?

Make payment extremely easy for your customers. Keep constant communications and offer easy online payment methods or instructions.

You can use an electronic invoicing system that sends invoice details and links directly in an email to avoid spam filters. Set up simple online payment options for clients to pay quickly after receiving the invoice. This can help build good customer relationships and prevent unpaid invoices.

8. Involve All Teams in the Process

A survey found that 90% of people think sales teams should not collect cash. This is surprising because sales teams play a key role in making sure deals turn into money for the company. They don't have to do the whole collection process, but they can help at important points. It's important to use their contact with customers to help with collecting cash.

Many people think payments are simple and only the finance team deals with them. But in truth, collecting cash involves many departments.

It's important for all client-facing teams, like sales, to understand the process. This keeps everyone informed and helps manage accounts receivable effectively. It also saves time and money by preventing errors and redundancies.

These teams should be involved in the process. Getting paid is crucial for business success. It also demonstrates the quality of your company's goods or services.

It is a qualitative approach, as each stakeholder will have a different and unique relationship with your customer and will be able to tailor their approach accordingly to get paid on time.

If you're not getting paid and it's not a technical problem, there may be a bigger issue in your process. You can ask your sales and success teams, who talk to customers, to help find the problem and fix it. The important thing to remember is that collecting money should involve everyone working together. Each department has a role to play, and no one team is in charge of everything.

AR Management Automation Software

Using software for accounts receivable management can streamline your process and automate tedious tasks that waste your staff’s time and leave room for errors.

Through our system, you can set up automatic, personalized reminders to send to customers when invoices are overdue. Plus, let them pay you via wire transfer, direct debit, credit or debit card — online, through an instant or scheduled payment, so they can settle up right away.

We’ll also help you keep track of your KPIs with simple financial reports, and keep your sales and finance teams in the loop with communications, dashboards, and tasks to help everyone keep track of their receivables.

Should You Outsource AR Management? 

The alternative to setting up your own processes and software in-house is to outsource AR management to an accounts receivable management service.

That would free up your time to focus on other aspects of the business. But it would likely cost much more to pay a service provider than your own staffer or contractor, or simply use software in-house. 

The other major drawback to hiring a service is a lack of transparency. Most companies outsource AR management for the wrong reasons. These reasons are that it’s time-consuming, it’s a complex and tedious process that businesses don’t want to handle it. By making this mistake and removing the operational complexity, you are also losing out on the opportunity to create and foster a strong customer relationship. Your customer relations are extremely valuable. It also disconnects your communication with your clients, making it more difficult to maintain relationships as well as handle payment issues when you need to.

Consider outsourcing AR for your company, but make sure you have the right reasons. Don't outsource just for the sake of AR operations. Instead, consider using specialized AR software to keep the process in-house and automate most of the collection process.

Managing accounts receivable internally allows you to send invoices and reminders to customers at the right times. This can improve customer relationships. Outsourcing AR management may not understand your business well. This could result in poor service and customer relations. It also makes it hard to effectively communicate within your teams about client accounts. Outsourcing AR management may not understand your business as well and could lead to poor service and customer relations. It also makes it difficult to communicate effectively within your teams about client accounts.

Keep in mind that if you think that outsourcing your AR management will solve the issue of collecting unpaid invoices then you are wrong. The issue often lies internally and only you can fix this within your business. If you decide to outsource AR management, use collaborative software. This way, team members can easily take over at different points during the collection process.

Remember that even if you outsource your AR management someone from your business will always have to get involved. AR management can be a tedious process but it’s not something that you will completely be able to outsource.

Key Takeaways

• Accounts receivable management in business aims to increase cash flow, reduce costs, and maintain positive client relationships.
• Switching to electronic billing and payments is important to make customer payments more efficient.
• Use AR software to automate workflows and allow your finance team to focus on more important tasks, saving time.
• Monitor important AR metrics to see how well your collection strategy is working and find areas for improvement. Use specialized AR software to track these metrics in real time. 
• Getting cash from customers involves teamwork. Use your sales and customer success teams to remind and follow up with customers for payments, maximizing collections.
• Outsourcing AR management may not solve your payment issues. The problem is usually related to your internal processes, which only your business can address.

Frequently asked questions

What Is Accounts Receivable Management?

Accounts receivable (AR) is any money your clients owe your business. Accounts receivable management is the system of processes you put in place to track that money, including:

• Billing and invoicing.
• Payment processing.
• Communications with clients.
• Internal communications and processes.
• Collections processes and credit policies.

Accounts receivable staff work closely with sales and finance teams and are typically responsible for collecting revenue, recording transactions, verifying payments, and resolving discrepancies on accounts.

What Is the Objective of Accounts Receivable Management?

The goal of effective accounts receivable management is to optimize your billing, payments, and collections process to minimize the time it takes to get paid and eliminate the risk of bad debt.

AR management includes creating and following standards and practices for your business to facilitate efficient billing and payment for your clients. Doing so means getting paid on time and avoiding late payments.

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