HomeLearning CenterThe Foolproof Guide to Accounts Receivable Management

The Foolproof Guide to Accounts Receivable Management

It’s not rare to see businesses missing a robust Accounts Receivable Management (ARM) system. This could set up a domino effect of financial issues in the future.

To avoid such problems, it’s really essential to nail down a system to handle your AR like a pro, making sure that invoices are always paid promptly and you’re aware of your outstanding receivables all the time.

Your role in the finance and accounting sector positions you perfectly to bring effective collection strategies to the table. And let’s not forget the tricky compliance requirements in the U.S. – they’re ever-changing and it’s crucial to keep up.

A healthy blend of reliable collections approach and compliant practices is your key to navigating the world of AR management smoothly, which is what we’ll discuss in this article.

What Is Accounts Receivable Management?

Accounts receivable management is the process of ensuring that your business receives prompt and consistent payments for goods or services provided, thereby reducing overdue bills and the staff effort required for collections.

This function spans numerous areas, from extending credit and managing customer relationships to invoicing, tracking payment trends, performing collections, and reconciling received payments.

Why It’s Important to Manage Accounts Receivable

Here are the key benefits of Accounts Receivable Management:

  • Cash Flow Management: ARM plays a pivotal role in maintaining a steady cash flow, especially crucial during economic volatility or company growth. Automation software can further streamline AR processes.
  • Strengthened Customer Relationships: Effective AR management fosters loyalty by accurately handling invoices and supporting documentation, thus reducing payment disputes.
  • Smooth Account Reconciliation: By keeping transaction and payment records up-to-date, AR management facilitates seamless account reconciliation.
  • Enhanced Business Reputation: Efficient AR management ensures customers have a positive payment experience, thereby boosting your business’s reputation.
  • Improved Employee Experience: Optimized AR management enables the accounting team to focus on strategic initiatives rather than administrative tasks, leading to higher employee satisfaction.
  • Cash Reserve Maintenance: Efficient AR management ensures enough cash to cover important operations like salaries, purchases, and dividends.
  • Attract Investors: A proficient AR system and a good track record for collecting payments signal healthy balance sheets, making your business more appealing to investors and lenders.

Tips to Optimize Accounts Receivable Management

Optimizing accounts receivable management revolves around a couple of key aspects for any business.

Map Out Current AR Workflows

It’s essential to understand your organization’s entire accounts receivable process to pinpoint areas for improvement.

Common issues include delayed or inaccurate invoicing, unclear payment terms, inefficient follow-ups, inadequate credit policies, poor dispute management, lack of visibility into invoice status, and inadequate staff training.

Track the KPIs

A pivotal task for AR staff is to use the right Key Performance Indicators (KPIs).

Send Multi-Channel Reminders

Send reminders through multiple channels like emails, WhatsApp, or other messaging platforms when invoices are overdue. Document each customer contact to improve internal tracking and create an audit trail if needed.

Invoice payment reminder in WhatsApp
Experience the power of automation with Peakflo’s multi-channel invoice reminders, reaching your customers through email, WhatsApp, and SMS. Leverage our escalation matrix to ensure timely reminders and faster payments, no matter where your customers are.

Prioritize Credit Policy

Set up a clear credit policy. Do not extend the credit terms to unqualified clients just to increase sales because it will bite you in the long run. You also want to track credit limits and client credit behavior.

Credit control report
With Peakflo’s credit control report, easily monitor customer credit limits.

Provide Ease of Payment

Make it as easy as possible for clients to remit payments by creating self-service customer payment portals, accepting a range of payment options, and enabling payment plans or subscription billing​.

Self serve portal for customers to view and clear invoice payments quicker

Elevate your customers’ payment experience with Peakflo’s all-in-one customer portal, where customers can pay using their preferred method, attach proofs, and view account summaries with ease.

Forecast Cash Flow Performance

Use advanced reporting to gain insights from your invoicing and payment processes. Accurate forecasting of cash flow and expected payment receipts can guide capital improvements and lead to more informed business decisions.

Visualize cash flow health and anticipate the future with Peakflo's cash inflow forecasts!
Take control of your financial future with Peakflo’s cash inflow forecasting, allowing you to visualize your cash flow health and predict future inflows. Start with Peakflo today and empower your business with the foresight to plan, strategize, and grow confidently.

Improve Communication

Engage your AR staff regularly on set policies and procedures to make sure your policies still make sense and that everyone understands what they are.

Also, make sure your clients are getting the right information from your business. Clients should be able to reach you easily to ask questions, raise concerns, and understand their balances.

Manage Disputes Effectively

Good accounts receivable practices enable businesses to accurately create, issue, and recall invoices, avoiding payment disputes and strengthening customer relationships over time.

Improve Record Keeping

Maintain timely and accurate transaction and payment records to ensure account balances are up-to-date and make account month-end reconciliation smoother.

Cut reconciliation time by 50% with Peakflo’s auto recon feature. Integrate your accounting software with Peakflo today and experience a new level of efficiency and precision in your financial management.

Focus on Strategic Initiatives

Optimized accounts receivable management allows the accounting team to focus more on strategic initiatives rather than administrative duties, leading to higher employee satisfaction and better strategic outcomes​.

Automate Where Possible

The most effective way to improve accounts receivable management is to automate as much as possible. Automation helps to reduce human error, speed up billing and collections, increase employee productivity, and improve reporting and forecasting.

Streamlining Finance Process through these Uncertain Times
Watch our webinar to streamline finance processes with automation.

Common Mistakes Companies Make When Managing Accounts Receivable

Managing accounts receivable (AR) is a critical aspect of any business, but many fall into common pitfalls, such as neglecting AR management until it becomes a problem.

This can lead to cash flow issues, damage customer relationships, and disrupt supplier ties. Here are five common mistakes to avoid:

Mistake #1: No AR Policy

Effective accounts receivable management requires a consistent approach. Without a clear AR policy, tracking customer payments and due dates becomes challenging, leading to late payments and cash flow disruptions.

Despite this, many businesses lack a formal AR policy, resulting in unclear procedures and potential mistakes. A well-defined AR policy provides clear guidance for employees, improving AR management and compliance requirements.

Mistake #2: Inefficient Technology

In today’s digital age, efficient technology is crucial for AR management. However, many companies still use outdated methods like Excel for AR tasks due to a lack of tools or the perceived cost and time of digital transformation.

Some may use accounting software for cash flow visibility but lack an effective system for invoice tracking and management.

Implementing a comprehensive system can help avoid these issues, improve cash flow, and streamline payment processing.

Mistake #3: Ineffective Communication

Clear communication with internal stakeholders and clients is vital for successful AR management.

Misunderstandings can lead to confusion about account actions, resulting in inefficient collection strategies and poor customer service.

Good communication practices can enhance relationships and improve the overall customer payment experience.

Mistake #4: Extending Credit to Unqualified Customers

Extending credit to unqualified customers is a common mistake that can lead to bad debt and financial difficulties. This often occurs due to a lack of data insights and visibility into client behavior.

It’s important to assess a customer’s ability to repay before extending credit, which can be facilitated through effective credit management practices.

Mistake #5: Inaccurate Records

Inaccurate invoicing due to insufficient technology can lead to customer disputes, prolonged cash collection periods, and increased operational costs. These inaccuracies can decrease customer satisfaction and result in financial losses.

An effective invoicing system is essential for smooth operations and dispute resolution.

How Peakflo Can Help

Realizing the importance of AR management is the first step in the right direction. You can then formulate a comprehensive AR policy and set procedures accordingly. This will help ensure that your company can effectively manage its accounts receivable and avoid any potential issues that could arise.

You may need to arrange the right tools for your AR department. It’s worth investing in a system that will keep your cash flows flowing. The right tools can make all the difference in terms of efficiency and effectiveness, so it’s important to take the time to choose wisely.

Peakflo increases transparency and gives you full visibility into your accounts receivable status. With Peakflo, you can see exactly how much money is owed to you, who owes it, and when it is due.

This information is updated in real-time, so you can always be sure that you’re getting the most accurate picture of your finances.

The comprehensive tool streamlines collections by:

  • Automating payment reminders with workflows
  • Providing credit limit overviews with the Credit Control Report
  • Enabling customer electronic payments with the Customer Portal
  • Tracking relevant metrics on our dashboard
  • Pursuing delinquent accounts by issuing Letters of Demand on your behalf

Sounds interesting?

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Lulu, as a content marketer in Peakflo, is passionate about educating users on accounts payable and receivable management to help businesses maximize their cash flows. When not glued to the screen, she has her attention either on her annoying brother or five adorable cats.
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