When managing your business, you want to be sure that every aspect works in your favor. The last thing you need is for there to be some operational red tape or a system that requires constant attention and monitoring. Again and again, you hear about the importance of having a streamlined process for anything related to the management of your company. Everything from inventory control to accounts receivable management needs to be handled in an organised way if you want to see measurable success as an organisation. To ensure your accounting department runs smoothly and efficiently, here are some tips on managing accounts receivable effectively. But first, let us know a little more about accounts receivable.

What an “account receivable” is?

An account receivable is the total amount of money the customers owe your business for goods and services they purchased on credit. An account receivable may include interest if you have a financing arrangement with the customer. If you run a service-based business, determining your accounts receivable will depend on the contract agreed with your customers for services rendered.
An essential thing to remember is that the amount of time it typically takes to collect from your customers is the “age” of the account receivable. Now let us highlight some tips to ensure a good accounts receivable management system.

Have a clear understanding of your bad debt ratio-
A bad debt ratio is the amount of money expected to go uncollected monthly. It can also be referred to as the “allowance for doubtful accounts.” Bad debt is a part of doing business: You cannot expect to collect 100% of what is owed. But you want to ensure you are collecting as much as possible. You want to make sure you do not have too much bad debt. The bad debt ratio is calculated by dividing the amount of past due invoices by the amount of all invoices. The bad debt ratio is important because it shows how much your total sales is uncollectible. It can also be helpful to compare your current ratio with your historical averages to see if there are any major changes.


Make sure you have the right tools- No matter what part of your business you are dealing with, you want to ensure you have the right tools to make your work easier and more efficient. Especially if you are dealing with accounts receivable, following the right policies and procedures is essential. It also means having the right software or accountants to ensure your business is collecting on all debts owed to you. For instance, hiring skilled professionals like Xero, FreshBooks, and QuickBooks accountantcan help you avoid such problems. Bad debt can be a problem for any business dealing with customers. While you will likely never reach a point where you do not have to deal with any bad debt, there are some things you can do to minimise its impact. One major step is establishing clear policies and procedures for when your business should pursue debtors for money owed. This should be done as soon as a customer’s payment is past due.

Use automation- As technology advances, more and more solutions are becoming available for businesses to streamline key operational processes. Whether you are looking to improve how you send out invoices or send and receive payments, there are software solutions to help you do so. You want to make sure you are getting paid as soon as possible. Also, you want to make your payment terms as short as possible, so customers do not have a reason to delay making payments.

Conclusion

Accounts receivable management is a crucial part of any business. The sooner you can get the money owed, the sooner you can use that money to fund other aspects of your business. This is why it is important to ensure your accounts receivable process is more streamlined and effective.