Tips for Managing Accounts Receivable and Accounts Payable

In an environment of economic uncertainty and fluctuations, it’s important to have predictable cash flow by properly managing accounts receivable and accounts payable. By implementing better processes around invoicing, collections, and payables, you can shorten the time you receive payments from customers to increase cash available to pay vendors.

These best practices can bring stability to your cash flow and help you better manage your cash runway:

1. Establish Clear Payment Terms With Customers

At the onset of your relationship with a customer, be sure to establish clear payment terms and an understanding that you do not make exceptions to those terms. To maximize cash flow, use a “due upon receipt.” Review your terms regularly and if customers have a habit of paying late, be sure to reaffirm expectations or update their terms to a shorter collection time frame. You may want to also entertain assessing a late fee to reinforce accountability.

2. Send Timely Invoices

Send invoices promptly after delivering goods and services, to ensure you start the clock on your payment terms and get your invoices into your customers’ payment queues. Use invoicing software to add automation to your processes and reduce the time needed to get invoices sent out.

3. Make It Easy for Your Customers To Pay

Utilizing an invoicing system that has built-in payment features allowing customers to pay via ACH or credit card will encourage customers to make timely payments. Include a link on the invoice for one-click payments and look for invoicing systems that allow them to register and save their payment info to facilitate quick approvals and payments on future invoices.

4. Monitor Receivables Regularly

Establish a habit of monitoring your outstanding receivables and following up with customers as soon as their invoices become overdue. This emphasizes that you expect to be paid on time. It also allows you to spot problems with customers and proactively address issues including amending your services or terminating the relationship before the amounts owed to you get too large.

5. Offer Incentives for Annual vs. Monthly Payments

Consider offering an incentive such as a discount to customers who are willing to pay upfront for a year of services rather than paying monthly at a “higher” rate. This accelerates cash into your business, reduces your operational time needed to send invoices and collect receivables, and lowers your risk of not getting paid.

6. Maintain Open Communication

Effective communication is crucial in any relationship, but especially in business. Be proactive and create a standard procedure for how to handle customers who may potentially face financial challenges. What are you willing to do to accommodate them and keep their business? By being flexible and equipping your team to communicate empathetically, you increase your chances of not only retaining business but earning an agile reputation—even during uncertain times.

7. Optimize Accounts Payable

It’s worth negotiating favorable payment terms with your suppliers, but be sure to pay their invoices on time. By doing this, you instill trust with your suppliers and puts you in a good position for future negotiations including possibly getting a discount.

8. Establish Budgets With Vendors

When engaging with vendors, be sure to ask upfront what the services will cost and set clear expectations and parameters around your budget so they stick to it. This can help eliminate the possibility of getting surprisingly large invoices.

9. Regularly Review Your Finances

Schedule monthly and/or quarterly financial reviews so you can keep track of your financial status. Be sure to do a comprehensive review that is not just your financial statements, but also includes a review of AR, AP, and cash flow forecasts. These reviews serve as proactive measures to identify any irregularities, discrepancies, or potential areas of concern so you can ensure you’re operating efficiently and you can address any foreseeable issues.

The above tips are simple steps to put best practices in place to manage your cash-ins and out and maximize cash flow.

Our team can support all of your accounting needs, including AR/AP management, ensuring your cash flow management is in alignment with your business needs and supports your overall return on investment. If you’d like custom support, contact us to discuss how to most effectively manage your accounts receivable and accounts payable transactions.