4 Tips to Manage Accounts Receivables Efficiently
It’s often said that ‘’if your customer owes you a hundred thousand, they have a problem, but if they owe you a million then it’s your problem’’. The first part of the above saying implies that your customer not paying a few hundred is an exception which is due to the inability of the customer to pay you back. But the next part of the statement sounds risky to the business. It clearly highlights the inefficiencies of business in managing the accounts receivables of your customer which has led to the pile-up of receivables. In addition to the above risk of not managing accounts receivables efficiently, it also puts your cash flow into jeopardy.
As you know, accounts receivables are one of the key sources of cash inflow, any inefficiency in managing accounts receivables will impact your business in several ways and potentially hamper the growth of the business.
In this article, we are sharing 4 key tips to increase efficiency in receivables management. Trust us, these are some of the proven technique followed by most successful business in managing accounts receivables efficiently.
Tip -1 Bills Receivable Management
One of the key essentials for increasing efficiency in accounts receivables is bills receivable management. Here, bills receivable management refers to the tracking of each sales invoice and mapping with the subsequent receipts received from the customer. Thus, at any point, you can easily track the bills pending instead of just knowing only the overall outstanding of a customer.
Tip -2 Ageing analysis
The longer an invoice sits as bills receivable, will lead to cash flow issues and at some point in time it may turn into bad debt. Thus, it is important for you to be top of ageing of each bill. This helps in identifying the bills which are pending from long-time and ones which require immediate action.
If you look at the above illustration, the ageing analysis clearly indicates bills which older by more than 90 days. This gives you the instant insights about the bills which you need to immediately follow-up.
Tip -3 Payment Performance and periodically following up
Payment Performance of customers’ is the average time the customers take to actually pay their bills irrespective of the outstanding balance on the statement date. This is also known as receivable turnover in days.
It is quite possible that the receivable turnover is low and the payment performance is high, indicating that the customers cleared their outstanding, but took a long time doing it. Periodically tracking the payment performance will help you to identify the customers who have a poor payment record and accordingly plan.
Tip -4 Internal Credit Control Techniques
To ensure better credit management, you can define maximum credit Limit based on the credibility, the volume of transactions, the capacity of repayment etc. for your customers. This will help business owners in overselling to a customer beyond the defined credit limit.
We all know, increase in efficiency in receivables management helps the business in the faster realization of sale to cash and provides much-needed cash inflow for your business which is very important for growth and expansion. While this sounds true, the only way you could achieve this is by automating accounts receivables process. Automation of accounts receivables process helps in ease of managing accounts receivables, easy to track the pending invoices and real-time status of receivables and ageing of bills.