Optimize Your Accounts Receivable with These Tips

If you’re like most businesses, there’s a good chance that you offer credit terms to your customers. This is known as your accounts receivable (A/R) because it represents the balance of money owed to you by your customers for goods delivered or services provided but not yet paid.

In a perfect world, every customer would pay their invoices on time or even a little early but this isn’t always the case. If your customers are taking a long time to pay their invoices, it means that cash will not enter your business as quickly as you need it to. And we all know how important cash is to the day-to-day running of your business.

So, how can you properly manage your accounts receivable? One effective way is to put together an A/R Aging Report but you might be asking yourself what that even is.

An accounts receivable aging report helps you see at a glance what is due from each customer and typically lists any outstanding invoices in 30-day groupings such as invoices that are 1-30 days overdue, 31-60 days overdue, 61-90 days overdue and 91+ days overdue.

In addition to being able to see at a glance what is overdue, you can also look further into each customer that has outstanding invoices that were issued at different intervals. For instance, a customer might have an outstanding invoice of $1,000 that is overdue by 31-60 days as well as an invoice of $350 that is overdue by 1-30 days.

Best Practices to Optimize Your Accounts Receivable

Now that you know what the A/R aging report is and the information it gives you, you can easily see which invoices you need to follow up on. Most accounting software platforms allow you to run these reports easily so that you’re able to identify any collection issues sooner rather than later and get a plan in place for getting customers to pay their invoices faster.

This is where the services of an online bookkeeper such as myself come in handy to take these tasks off your plate but in the meantime, here are several ways you can optimize your A/R.

Automate Invoicing

As a rule of thumb, the faster you invoice your customers, the faster you’ll get paid. In Quickbooks, you can automatically create and send invoices to your clients which helps you save time and improve your cash flow management. Quickbooks also gives you the ability to keep track of any outstanding invoices so that you have a real-time visibility of your accounts receivable.

When you automate the invoicing process, you can reduce errors and ensure that your invoices are as accurate as possible before they are sent out.

Clearly Communicate Payment Terms

Make sure that you clearly communicate the payment terms with your customers on every invoice. Net 30 is probably the most common payment terms and simply means that your customer has 30 days to pay their invoice.

Offer Discounts

You could also consider offering a discount to customers who settle their invoices early. As an example, if you set a 2/10, Net 30 discount, your customer will receive a 2% discount if they pay within 10 days, otherwise, regular payment terms apply. A pitfall of offering an early payment discount is that it comes as a cost to your business but in some cases, it is worth it in order to receive the cash flow boost.

Be More Selective

When you examine your A/R Aging Summary, you can start to notice any repeat offenders – the customers that are late in paying time and time again. There is no law that says you are obligated to continue to offer credit terms to those customers. In fact, I would recommend switching those kinds of customers over to a Cash on Delivery (COD) policy

Shorten Terms

There is also no rule that says you have to offer a Net 30 payment term to your customers. Using a shorter payment term such as Net 15 or Net 10 can often prompt customers to pay faster.

Start Accepting Online Payments

If you’re not accepting payments online yet, then you are likely already feeling the impact of delays such as checks being lost in the mail. Offering more convenient options of payment will encourage your customers to pay faster.

There are several ways to accept payments online:

? Credit Cards – Mobile payments solutions will allow your business to accept credit cards and though the fees can be considerable, the tradeoff is that you get paid faster.

? Other Options – PayPal and Square are other examples of online payment gateways that your customers may be interested in using. PayPal also deducts a percentage fee, just like with a credit card, but it may be worth it to offer it as a payment option.

? ACH – This is simply the abbreviation for Automated Clearing House which is the vast network that carries out electronic payments within the USA. It is similar to receiving a check but you’re eliminating paper and automating the creation of a digital account record. Unlike PayPal or a credit card, you pay a flat fee per transaction which makes this a much more cost-effective option. Even if you haven’t used this in your business yet, chances are you’ve used it in your personal life to pay a bill where you entered your bank account and routing number.

In conclusion, doing the books and keeping it caught up is not something that comes naturally for many business owners and this includes being able to optimize accounts receivable. In addition to understanding how to put together an A/R Aging Summary, it’s also very important to take the insights you’ve gained from that report and turn them into an actionable plan to speed up the collection of payment from your customers.

Choosing to outsource your bookkeeping to a professional helps take these tasks off your plate so that you can focus your energy on what you do best. If you’re ready to hire a professional or you have questions about outsourcing, I want to invite you to book a free discovery call with me here. We’ll talk about the goals and needs you have for your business and see if we’re a good fit to work together. Book your free discovery call with me here and I look forward to chatting with you soon!

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Cheers to your success,

Karen Kinsinger