The account receivable process is basically obtaining payment from customers within a specified time period. AR management is used by companies that sell products or services to track and manage every step of collecting payment from customers. It is crucial to building liquidity, profitability, and avoiding bad loans. However, it involves more than just receiving payment on a bill. An efficient and robust account receivable process can differentiate between losing capital and a growing business. However, companies that still use manual methods to manage their AR will face many roadblocks impacting cash flow and customer satisfaction.
You will need to understand the basics of accounts receivable to gain a complete understanding of how the accounts receivable management system works and how it impacts your AR engine. Next, we’ll be discussing what AR is and why it’s so important. Finally, we’ll show you how an effective AR management strategy can help your business.
What is the importance of Accounts Receivable Management?
We’ve now covered the basics of accounts receivable. Next, let’s move on to AR management, a crucial aspect of any company’s assets.
An organization can build and retain customer loyalty by ensuring strong AR management. Customers can make purchases using credit instead of upfront payments. This creates an environment of transactional ease. Easy, consistent communication is the key to strengthening this relationship, especially regarding payment. AR management makes it easy to send invoices and other documents. As a result, customers will always know what they owe and when it is due.
Companies can also maintain healthy cash flows by managing their accounts receivables well. This is vital for avoiding shortfalls and, in some instances, bankruptcy. Avoiding delays in payment is crucial as incoming cash is the foundation of a company’s future revenues. Organizations must manage their accounts effectively to increase their working capital and ultimately pay their bills.
For healthcare, accounts receivable management refers to proper medical billing and collection. A healthcare organization that fails to bill patients on time or collect their payments can result in a limited cash flow, making it difficult for them to pay their operating costs.
Peakflo’s Account Receivable Process
Although the process of managing AR may vary from one organization to another, there are 4 key steps that we follow for a solid process to occur.
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DETERMINE CUSTOMER CREDIT RATING
Before you agree to terms and conditions or accept a new customer to your services, you must determine if they can pay for the goods or services. This is determined based on credit information. It helps you decide whether you will need payment upfront or extend credit.
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MONITOR LATE PAYMENTS
It is vital to keep track of when each payment is due and send reminders to customers accordingly. Consistent communication with customers is the key to preventing non-payment or collection, ensuring healthy cash flow.
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CONTINUE TO MAINTAIN CUSTOMER RELATIONSHIPS
It is essential to provide excellent customer service and promptly address any questions or complaints to build solid working relationships.
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MAINTAIN ACCOUNT BALANCES
To ensure that payments are accurate, you must ensure that customer balances are updated regularly. In addition, customers and internal teams should both have access to real-time balances.
What are some common challenges in accounts receivable management?
It can be difficult to maintain an efficient AR management system, especially for businesses that still use manual methods. Companies may encounter these common AR management problems if they don’t have the right tools.
NOT CHARGING FOR TIME
You are at risk of customer invoicing delays if you don’t have tools to automate billing. This can adversely impact your cash flow and liquidity.
NOT COLLECTING AT TIME
You might not be collecting the money you owe if your system for tracking purchases, invoices, and payments doesn’t update in real-time. Businesses that rely on manual AR processes take 67% more time to follow up on past due payments. This is your Order-to-Cash (O2C)cycle. Delays in the collection make payroll and acquisitions more complicated, as well as accounts payable and liquidity more difficult.
ERRORS in BILLING, INVOICES, and DUPLICATE PAYMENTS
Human error is often the result of relying on paper or manual invoicing. Incorrect billing can lead to 61% late payments. This could mean that your business is losing out on more money than you realize.
BEING CONFUSED WITH A LOT OF INVOICES TO MANAGE
The more customers you have, typically, the more successful your company will be. If you have trouble paying your bills on time, this is not a good sign. Your team will likely lose the ball if they don’t have the right tools to efficiently and effectively manage customers and invoices. This can lead to poor customer relations, workflow visibility, and cash flow.
