Every business needs a steady stream of cash flow to thrive. If there are many late payments or unpaid invoices, it can be difficult for a business of any size to make ends meet. That’s where accounts receivable management chips in.
Unfortunately, not many companies are familiar with effectively managing accounts receivable. It’s why outsourcing these services to an organization that has the skills and experience comes in handy in ensuring overdue accounts don’t affect your company’s cash flow.
In the guide below, we will explain in detail what is an accounts receivable management service and how these solutions can benefit your business.
For you to have a better understanding of receivable management service, you must know what accounts receivable is. Abbreviated as AR by professional accountants, accounts receivable refers to money or invoices that your business is owed.
Accounts receivable are part of all businesses, irrespective of your industry or niche. It is common for companies to have clients who don’t pay on time. This forces the business’s finance department to use up their time to look after these clients and remind them of their unpaid invoices. Accounts receivable management is often complex and time-consuming for most companies. It’s why a lot of businesses opt to outsource receivable management services.
Accounts receivable management services refer to third-party organizations that oversee the debt collection process on behalf of your company. The provider of the receivable management service allows you to focus on other aspects of your business as they go after unpaid invoices or late payments.
Providers of accounts receivable management services should comply with industry standards like ISO 9001, as it ensures quality services.
There are many reasons why you should hire an AR management service. First, thanks to these solutions, you are assured of getting paid on time. Delayed payments can significantly affect the daily operations of your business. Due to late payments, you may be unable to pay employees or stock up on inventory in time. Receivable management solutions prevent that from happening.
The other thing is that these services ensure steady cash flow. Business is a cycle. When one part of that cycle is removed from the equation, the results can be catastrophic. Without cash flow, no matter how big or small your company is, the profit margins will decrease, and you may end up over-borrowing.
These services go a long way in facilitating a mutually beneficial relationship with customers. Efficient receivable management solutions ensure that your clients embrace a habit of making payments on time. It also lowers the losses associated with bad debt.
There are two options when it comes to managing accounts receivable. Either hire, train and maintain an AR team in-house, or outsource these solutions. The latter comes with the following benefits;
When you partner with an experienced AR management service provider, they will streamline the payment process. As a result, your finance department can focus on other aspects of your business and not chase after missed payments. It can significantly boost employee productivity and efficiency.
Setting up accounts receivable management in-house requires time, money, and resources. It’s more economical to outsource these solutions and get paid on time. Another perk of outsourcing accounts receivable management is that it helps the organization save on administrative overheads. It is highly beneficial to businesses that are non-finance related.
Accounts receivable management collection agency comprise finance experts with years of experience in debt collection. With such a team by your side, you are assured of better accuracy and reliability.
If you spend most of your time chasing after unpaid invoices, certain aspects of your business will stagnate. Thanks to AR management services, you can focus on product/service development, marketing, and sales.
An agency skilled in AR will use polite reminders and smooth negotiations with clients. This professional approach ensures your business retains a positive image. Your clients will feel more obliged to pay on time, resulting in improved cash flow.
Unlike your business which runs several things at once, accounts receivable management service providers focus only on one thing – debt collection. You are assured of speedy debt collections by utilizing accounts receivable management best practices and technology.
A couple of factors make your business an ideal candidate for outsourcing accounts receivable management services.
You should outsource AR solutions if;
• You are a solopreneur, and accounting isn’t one of your string skills.
• You are too busy and have no time to follow up on debts.
• You need professional accounting help because your business has many unpaid invoices and is struggling with sustaining daily operations.
• You lack the skills of negotiating with customers and are afraid of breaching debt collection regulations.
Even if you plan on outsourcing these services, you must familiarize yourself with the accounts receivable management process. Here is an overview of the AR management process.
The first and most crucial step in managing accounts receivable is setting up credit policies. As you will see later in the critical areas of AR, creditworthiness is vital. A business should not offer a product or service to a client on credit without identifying their worthiness.
After determining if a client is worthy of being given service on credit, the business sets up the terms and conditions. These terms should align with the Federal credit laws in your area of residence. The AR management service provider can help with setting up terms.
It’s also worth noting that credit policies differ from one business to another. A large corporation with significant capital can have longer repayment durations. The same can’t be said for small businesses with lower capital.
The business should include the services or products sold to the client in the invoice, the total amount, and the due payment date. To ensure the accounts receivable management process is effortless. Invoices should be given specific numbers. Doing so enables the business to identify which invoice belongs to which client.
Thanks to the internet and technology, invoices these days can be transmitted electronically. Most clients prefer electronic invoices because paper ones can easily be misplaced. Sending invoices should be done punctually because it ensures the client pays on time.
When a client pays for the invoice, the payment must be recorded in the AR ledger. The unpaid invoices must be registered for future use if the client did not pay. Tracking differs from one business to another. A small business may use tools such as Excel to track accounts receivable. However, when you outsource
AR management, professional agencies use robust tracking software, which is accurate and more reliable than manual tracking.
The last step is accounting for the AR. In this stage, the collections department determines the due dates for payments. They can then record early payment discounts and bad debts. Accounting is done for cash and accrual-based accounts.
In the entire process of AR management, there are three main areas, which include;
When managing AR for a company, a lot of emphasis is put on determining how credit-worthy a person or company is. The goal is to minimize risk. For a business to be sure that a client is creditworthy, they may seek reference from the client’s bank or another company they have dealt with. A business can also consult credit rating companies. Another method of determining creditworthiness is by checking their stories in the media, visiting the client to asses their financial situation or asking for bank statements.
The second thing that matters in AR management is setting terms and conditions. A business should set rules for accounts receivable, which should be explained to the client when they are given service on credit.
For example, a client should be informed of the penalties for late payments and discounts for early payments. Depending on the client’s financial situation, everyone should have a specific credit limit. These terms are subject to review as time goes by.
Before cash is collected, the customer should be sent an invoice on time, filled with essential details. Remember, an invoice with misleading information can lead to a dispute between the business and the client. Make sure that all details are accurate.
Invoicing isn’t the only method of cash collection. Businesses can also utilize letters, phone calls, statements, and personal approaches. If all these options fail, a debt collection agency can help.
A business can have several goals behind the management of accounts receivable. Some of these objectives include;
Managing accounts receivable guarantees that payments will be made on time, and your business won’t have to deal with bad debt. As a result, there will be improved cash flow, and you can efficiently run other aspects of your business, such as paying employees and regular expenses.
Most clients like doing business with companies that offer products or services on credit. Thanks to AR, your business will offer such a solution and witness a sales and profit surge.
An accounts receivable management system keeps track of customer payments. Clients who pay on time can be offered discounts, enhancing your relationship. Maintaining a good relationship with clients is vital as it promotes loyalty.
If a business writes off bad debt worth $1,000 in a month, that translates to $12,000 worth of losses in a year. That’s a lot of money for your business to lose. Efficient management of AR ensures debts are paid in time, and there are no bad debts to write off.
Managing accounts receivable helps you keep track of money that customers are yet to pay you. For any business that deals with credit, keeping track of these dues is critical for company success. Accounts receivable management assists with tracking money that is outside, monitoring a client’s payment performance, and managing long-pending bills.
MR-Accountants is a premier provider of accounts receivable management services. We partner with a wide range of industries and help them with debt collection. With MR-Accountants by your side, you can focus on other aspects of your business and let us work on enhancing your business’s cash flow.
Here are more reasons why you should choose us to manage your AR;
• We will streamline your business’s payment process by automating invoice delivery, making it easier for clients to pay on time.
• MR-Accountants will help you minimize credit risk by providing a professional assessment of creditworthiness and setting up clear terms.
• When you choose us, you will have access to an experienced team skilled in problem-solving and negotiation. These skills come in very handy in debt collection.
What are you waiting for? Outsource accounts receivable management solutions to MR-Accountant and witness tremendous growth.
Quickbooks is a software that enables you to manage accounts receivable by tracking payments and invoices. Therefore, accounts receivable on Quickbooks is an asset account that records the money your customers owe to you.
As we have seen in the above guide, accounts receivable is the money customers owe to your business. On the other hand, accounts payable is the money your company owes to suppliers. Accounts payable is the money going out, and receivable is the money coming into your business.
Since accounts receivable is the money owed to a seller by a client, it goes as an asset in the ledger or balance sheet. If you have been wondering what goes in accounts receivable? Place it as an asset.
AR is a short form of accounts receivable. It is slang amongst finance experts. Therefore, AR and accounts receivable can be used interchangeably.