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Posted April 10, 2014

accounts receivable best practices

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In a perfect world of B2B payments, your invoice would be paid in advance of the service you’re providing. But the reality is that business typically runs on credit. That’s why having an organized accounts receivable (A/R) system is essential for the success of your business. Having strong A/R practices may not only improve communication with your customers and get you paid, but it also can illuminate other parts of your business for upsale opportunities.

So what are the best practices for effective accounts receivable? Here is our list of 10 best practices for accounts receivable, broken down into three buckets—terms, technology and an overarching systems approach:

Terms

  1. “Payment Due upon Receipt” – Unless otherwise dictated by contract terms, make invoices due on receipt rather than thirty days. Invoices are typically paid in anywhere from 30 to 60 days. However, many businesses have found that writing “due upon receipt” is a subtle way to receive payments much faster
  2. “Early Pay Discounts” – Typical discounts are 2/10/30, meaning the recipient receives a two percent discount if the bill is paid within 10 days on a 30-day notice. Note that accepting a purchase card and processing with Level 3 data will get close to the cost of terms, and you will have your cash right away

Technology

  1. Email Invoice/Offer E-pay – Technology gives businesses a balance between security and efficiency. Invoices that are delivered into a payments system are easier to track. Electronic payments, including purchase cards, give customers a convenient method to pay
  2. Store Payment Information for Recurring Payments – If your organization accepts cards for payment, consider keeping the card information on file, which will provide a long list of benefits for your business, like getting paid faster with minimal customer action
  3. Software – Using an accounting software package or enterprise resource planning (ERP) is a great way to organize and send invoices and keep a paper trail for payments. Almost all of these packages offer an account aging function so you can track any customers who are behind

Systems Approach

  1. Manage Credit/Keep Records – This section of “Best Practices” really boils down to one important task: pay attention. When managing credit, pay attention to who pays on time, who responds to discounts and offers, and most importantly, debt
  2. Monitor A/R Deadlines – Look at upcoming deadlines at the start of each business week. While sending an email reminder for payment would suffice, this may be a good time to look at tip #6 and make a phone call to personalize your account (depending on the volume and if time permits)
  3. Have a Time Limit – No business owner can provide free goods and services along with interest-free credit, so having firm rules on days outstanding keeps everyone focused
  4. Charge Interest – Even though you aren’t a bank, consider charging interest on overdue accounts
  5. Drop Customers Who Don’t Pay – There are many tips on how to remind clients to pay their bills (usually involving multiple notices), but sometimes you need to make tough decisions. If a customer is a consistent late payer, try purchase card or ACH debit

How a business receives (and spends) money is a snapshot into their long-term health and viability. Yes, accounts receivable is important in itself—it is literally what keeps you in business. But delivering goods and services and the keeping, tracking and receiving of timely payments are also signs of a business’ level of efficiency and organization.

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WEX Corporate Payments

WEX Corporate Payments


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