5 Best Practices for Improving A/R Collections and Management

Your accounts receivable (A/R) collection process is a cornerstone of your organization. It all comes back to cash flow and getting paid: When clients pay on time, cash flow is predictable and consistent. But when clients are delinquent, this consistency goes out the window. Every missed payment is another task, another reminder and another workflow that someone on your team will need to deal with.

These productivity losses add up fast, not to mention the damage that inconsistent cash flow can do to a growing business. No matter what industry you’re in, you can set your business up for success and improve A/R collections.

Our 5 best practices for improving accounts receivable collections:

1. Create a Follow-Up Policy

Start by creating a follow-up policy that applies to all clients. Any time they miss a payment, have a team member send out a notification. (Or better yet, use A/R collections software to automate reminders for delinquent accounts.)

Make sure you inform your new and existing clients about your invoice follow-up policy. Don’t let them claim ignorance as an excuse! You’ll have a better collection rate if you make it clear from the outset that you aggressively track and follow up on late payments. Show clients it’s a priority for you, and it’ll become a priority for them.

2. Establish and Track KPIs

Key performance indicators (KPIs) measure the health of your accounts receivable process. One of the most important metrics for accounts receivable collections is days sales outstanding (DSO), a KPI that tracks the average time it takes to get paid after sending an invoice. This metric is just one of many. Other important A/R metrics include invoice accuracy, average days to invoice, customer complaints, and credit overruns.

Set benchmarks for these metrics and monitor them over time. When you have some baseline data to work with, you’ll be able to set KPI goals for each metric and examine how to optimize your receivables collection management.

3. Create an Invoice Dispute Process

Invoice disputes can be big sticking points in the vendor/client relationship. Get ahead of these issues by creating an established process for disputes. Outline basic procedures for handling questions, what type of data to fall back on, and who in your office will handle client contact. Make sure your accounting team is aware of this process and who they should turn to when issues escalate. The faster you can resolve each customer issue, the more likely it is you’ll be able to continue your mutually beneficial business relationship.

4. Assess Collections Regularly

Inconsistent cash flow is a top concern in accounts receivable management. As many as 60% of small businesses struggle with cash flow problems each month, and 63% of SMBs would take advantage of tools to help them better manage cash flow issues.

Accounts receivable automation software is one easy way to improve A/R collections, but even without financial tools, you can get a grip on things by assessing collections more often. Make it a habit to assess outstanding and current invoices. This practice helps you see where your clients stand and predict times in which cash flow will be tighter than usual.

5. Leverage Automated Accounts Receivable Software

Last but certainly not least, consider adding automated accounts receivable collection software to your collections department. The right A/R collections software can bring numerous benefits to your process:

  • Analyze KPIs and financial metrics with ease
  • Eliminate time spent on administrative tasks, chasing invoices, and manual processes
  • Generate reminders and reports automatically based on each client’s parameters

Implement these best practices and get proactive with your accounts receivable collections. With just a few process improvements, you’ll be able to work faster and more efficiently while increasing the odds that you’ll get paid on time. 

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