Accounts Receivable Management can be a difficult area to delve into. If you’re a business owner or part of a company, you’ve seen that it’s a struggle to manage when there are a lot of repetitive and time wasting tasks. Large companies have a similar problem except they deal with millions, if not billions of dollars. Whether you’re a part of a small or large company, managing accounts receivables is a tricky task that requires more than pesky phone calls. We have created a list of tips and guidelines to help you manage your accounts receivables.
Accounts receivable management is the methods in which unpaid customer bills are collected in the full amount and sent to the correct account. The goal of accounts receivable management is to recoup this undelivered money and increase cash flow. As an example, say company XYZ performs a service for customer A but customer A doesn’t have to pay for the next 30 days. The revenue earned from that service needs to be collected before the payment is overdue, and this is done by making phone calls, sending SMS messages, emails, or mail to remind the customer that they need to make the payment. This is an example of accounts receivable management.
Every year, billions of dollars of bills are left unpaid. Every company that has any kind of paying customer has experienced the late-paying or non-paying customer. This problem is ultimately unavoidable, but steps can be taken to reduce the number of your accounts receivable and increase your cash flow. Companies go into bankruptcy because of a lack of cash, not because of revenue.
To reduce accounts receivables, you need to contact your customers, have a payment policy, and follow up immediately after the payment becomes overdue. You should also make it easy for your customers to make payments by using a self serve tool. Customers would much rather avoid making a call to an employee. Another tip is to offer a payment plan once you realize your customer cannot pay under the current terms. All of this can be done using an automated accounts receivable management software so you don’t have to spend the time on it yourself. By automating as much as possible, you will see your overdue customers start to make payments. If you’d like more information about how to reduce accounts receivables, check out these 5 tips to reduce your past due accounts.
We have found 3 main reasons why customers don’t pay and have found that they are crucial to understand how to manage accounts receivables.
If you have an accounts receivable management software you need to know how to use it effectively to create the most return. You should make sure your software has the right features to help you increase your cash flow and receive more payments. This can make or break a company if not used correctly. If you have already chosen an accounts receivable management software you need to stay up to date on what other options are out there. Some systems have the basics to get you going but don’t have some essential pieces that can really get your cash flow moving. Collecting payments isn’t as simple as making some phone calls, pleading with customers to pay, and watching cash roll in. Having a clear understanding of other software packages will help you be certain that you have the most effective toolbelt. If you’re not sure what features should be included, check out this post on accounts receivable management tools every company needs.
We know that the end goal is to increase cash flow by getting your duly owed money back from your customers, however, it is vital that the process your customer goes through is one that will make them want to work with your company again. The way collection agencies work is too impersonal, too pushy, and too messy. If you strive to improve your customer relationships from the day of purchase to the day of payment, your customer will not only be willing to pay their bills on time, but they will likely work with you again if you’ve made it easy for them to work out when payments are due. If you use a management software for this, it will take the pressure off of your customers because they can manage what they owe on their own time. Making the effort to build solid relationships will always lead to more sales.
This idea works in tandem with improving customer relationships. To make your customer’s experience making payments as painless as possible, you need to make sure they have the option to either talk to someone at any time or have a communication bot to provide feedback and advice. The worst thing that could happen is if a customer is ready to pay up but has no way to contact your company to make that happen. This is why having an automated accounts receivable management system is so crucial to successfully settling bad debts. Instead of requiring an employee to handle every customer, many of your customer interactions can be managed by an automated system.
If you are looking for more information about accounts receivables, check out our guide to the accounts receivable process.
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