The what, why, and how of accounts receivables
To many businesses, no matter how big or small, billing is often one of the biggest headaches they face. This often leads to a decline in business success- especially due to its direct effect on cash flow. 39% of all invoices that are recorded in the USA are paid late. That means that almost half of sales revenue is stuck in credit sales. Moreover, approximately 52% of businesses report that they request payment extensions regularly. This is a clear indication that most of the businesses in the USA are affected by poor accounts receivables management. To rectify this issue on an internal basis, it’s important to first derive what a/r management entails, why it’s done, as well as how a cohesive strategy can be created with automation software.
What are a/r?
Accounts receivables, or A/R, represents the monies owed to your business by customers for services and goods rendered. These monies have not yet been paid to you by these customers. A/R is listed within your accounting systems as a current asset. It’s created when one of our customers purchase items or services on a credit basis. Generally, a business would deliver the service and goods immediately to the customer, send an invoice to them, and is generally paid within a set period.
Bad debt
Oftentimes, customers are unable to pay for services or products rendered to them, they are written off as a bad debt expense. This can include a reduced-, delayed, or missed payment from customers. Bad debts happen in situations where bad internal processing, or the status of the customer’s ability to pay changes.
Although there is a limited motion of change when it comes to the customer’s internal ability to change, businesses are in a position to increase their internal processes to help promote earlier credit payments from their customers to ensure timely or accurate payments.
The importance of accounts receivables
Although accounts receivables can oftentimes feel like more of an expense than an asset, A/R is a vital part of a businesses cash flow. For many small and medium businesses, this means that a large chunk of their working capital is set within A/R. Many small businesses report that maintaining cash flow is one of the biggest challenges for critical business success. This means that meeting not only stakeholder expectations but running operations on a day-to-day basis may be gravely affected by the development of your A/R strategy.
How to establish a succesful AR strategy
One of the key goals of your a/r management strategy is the increase of on-time payments, as well as a decrease in the amount of overdue payments. The establishment of a successful strategy will help increase the liquidity of the company as well as the working capital available for new ventures, or operation costs. Furthermore, it offers you the ability to increase the flow of relationships with customers, ensuring a higher level of trust and accountability.
Creating an effective a/r strategy
From establishing a clear communication strategy to optimising the collections process, AR Collect offers you an easy and effective way to ensure you get paid on time, every time. Learn more about how AR Collect can help you establish a a/r strategy by checking out our unique automation software features here or signing up for our free trial below: