Are you facing delayed payment for purchases made by your customers? Here is an article to let you know how to organize your accounts receivable system to make sure there is no delay in receiving payments for your deliverables.
Businesses, despite having significant sales throughout the year, witness a shortage of cash. This is due to the payments outstanding with customers and clients. These accounts receivables that remain jammed in a business lead to a cash crisis, causing compromises in the business procedures. The delay in the accounts receivables, however, is not necessarily because of the intentional postponement of the payment but could be a delayed receiving system from the end of the business too. Thus, every business must look into how to collect accounts receivable sooner as this would help the finance to keep flowing.
What Is Accounts Receivable & AR Cycle?
Accounts Receivable (AR) reflects the payments due for goods and services that a firm delivers or makes available for use to customers, and for which the latter needs to make payment. As it is the money to be received by the business, it gets entry on the asset side of the balance sheet.
While processing and calculating the AR, it is important to know what is accounts receivable cycle. It starts with the delivery of the products and services, the payment for which is made when the invoice gets settled, and the payment is made in full. For the AR cycle to be followed well for receiving payment, it is important to know the required steps:
- Have a feasible credit application process
- Ensure sending invoices to customers on time
- Mention payment terms along with due dates
- Keep track of invoices
- Recording the activity
As soon as you make the AR cycle efficient, obtaining accounts receivable on time becomes easier.
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Factors Ensuring Speedy Collection of Accounts Receivable
Though your business generates significant sales throughout the year, you may find yourself running short of funds. This happens when the due payments are not cleared on time. Thus, being a business owner, it is your responsibility to have a speedy pattern to follow to ensure the system supports exactly what you decide on how to do accounts receivable for your business.
The accounts receivable process consists of several steps, following which and speeding up which will surely keep your finances flowing without interruption. Let’s have a look at how to collect accounts receivable sooner.
Most companies prepare invoices altogether at the end of the month and send them in batches. This requires double efforts as you have to go back to find details and prepare your invoices based on the previous deliveries. While it is a common practice, it is hardly recommended for you to continue with it.
As a business, you should prepare an invoice as soon as the delivery is done. This way, you can keep adding to the list and share invoices as planned. This way, you are likely to not miss out on any details. This practice would not only ensure accuracy but also a sped-up invoicing process for your business.
Appropriate Invoicing Practice
If you are a business with high sales figures and are likely to receive a huge amount for the product deliverables, it is recommended that you go for milestone invoicing instead of daily recording of details in the invoice. Through milestone invoicing, the accounts receivable process is quicker. How?
Every business schedules the receipt of products either within a particular period or up to a certain amount. Thus, it is recommended to businesses consider the period or amount as a milestone, which when achieved should be recorded with all details within the invoices. As a result, keeping track of and monitoring the receivables information becomes easier.
Clarity In Invoices
At times, customers do not pay on time as they don’t understand the invoice properly or they have difficulty figuring out how a business has charged them. Thus, you must have clarity in your invoice. The products, quantity, pricing, order date, and delivery date should be clearly mentioned. Instead of using product codes, mention the name of the products properly. Don’t use abbreviations, specify the details with all clarity and make the invoices easy to read.
When the information in the invoice is clear, the payment made will be quicker as expected.
Ask For Payment
When you deliver the ordered products, you bear huge expenses in organizing resources to complete those orders, right? You have the right to ask for payments from customers if they are delaying it too much. At times, customers think they have already paid you. One call or message from your end would remind them they have missed paying you. Don’t hesitate in asking for the due amount, if they are not paying you even after repeated reminders.
You know who to trust and who not to. Select your loyal customer base accordingly and decide your plan of action per that.
Think Before Credit Extension
Most businesses trust whoever comes in with a purchase on credit demand. They think the increase in their sales figure would exhibit their growth. However, they forget that business runs on money and if not paid, the sales are of no use and cannot be flaunted. Thus, be smart enough while extend credit to customers. If you keep on allowing them to purchase products on credit, they might end up defaulting, thereby worsening your financial condition.
Offer Payment Feasibility
Today, there are several modes of making payments. Hence, don’t restrict your customers. Instead, give them the liberty to choose how they want to pay you. This will ensure speedy collection of your accounts receivable as they can pay you from wherever they are and whenever they get reminded of paying you.
The abovementioned points reflect the easiest answer to how to collect accounts receivable sooner. If you follow them and organize your payment-receiving system properly, no one can stop you from generating revenue on time unless customers delay paying for purchases intentionally. Implement the above recommendations and modify your accounts receivable cycle to speed up the payment-receiving system today!
At Ledger Labs, we understand how important it is for you to collect the outstanding dues. However, lack of time might delay the collection. Well, to ensure a speedy collection of accounts receivables, you can always connect with us!