10 Accounts Receivable Best Practices 2024

This article will explore ten important accounts receivable best practices for 2024, empowering you to streamline your invoicing, credit management, and payment collection strategies.

Managing accounts receivable (AR) is important to keeping a healthy cash flow and overall financial stability for businesses. As the economic landscape becomes particularly shaky, it becomes imperative for organisations to stay on top of the latest trends and adopt best practices to optimise their AR management. 

This article will explore ten important accounts receivable best practices for 2024, empowering you to streamline your invoicing, credit management, and payment collection strategies.

What is Accounts Receivable?

Accounts Receivable (AR) is the outstanding amount of money a business owes its customers for goods sold or services provided on credit. It represents the credit sales that still need to be collected and is considered an asset on the company's balance sheet. 

Effectively managing accounts receivable is necessary for maintaining a financially healthy business. The management of this AR directly impacts a company's liquidity, which is a critical factor in ensuring that a company has enough cash flow to meet its obligations and pursue its goals.

 By keeping track of accounts receivable, a company can identify and proactively address potential cash flow problems before they become significant. Additionally, a well-managed AR process can help build strong customer relationships and reduce the risk of bad debt.

1. Implementing robust invoicing procedures

1.1 Send invoices on time. Every time:

Don't keep your customers waiting! Timely invoicing sets clear payment expectations and reduces delays. You can also automate the process to ensure invoices are generated and sent right after each sale is completed. 

1.2 Personalise your invoices:

Stand out from the other businesses by customising your invoices. You can easily do this by adding your customers' branding, logos, and a friendly note to show that you care about doing business with them. It's a slight touch that goes a long way in enhancing your customer relations.

1.3 Implement digital invoicing and automation:

Embracing electronic invoicing and automation not only saves you time and reduces costs, but it also takes care of often repetitive tasks like sending payment reminders.

2. Devise efficient payment collection strategies

2.1. Prompt customers to pay early:

Encourage early payments by offering incentives or discounts. Let your customers know the perks of settling their bills sooner. It's a win-win situation - you get your money faster, and they save a little, too.

2.2. Make payment easy

No one wants a complicated payment process. Offer different payment methods to cater to different preferences and locations. Whether credit cards, bank transfers, or Buy Now Pay Later (BNPL), give your customers the flexibility to pay how they like.

2.3. Follow up with collections:

Sometimes, gentle reminders are necessary. Implement a collections follow-up process for overdue payments. Send friendly reminders and be persistent, but always maintain professionalism. A well-structured follow-up can help you recover outstanding amounts without burning bridges.

3. Leveraging technology for AR management

3.1. Upgrade with advanced accounting software:

Ditch the stuff scattered everywhere approach, and opt for advanced accounting software to improve your AR management. Tools such as Credit-IQ can automate reminders, track payments, and generate real-time reports.

3.2. Streamline with CRM and ERP integration:

Get more value from your software. Integrate your AR systems with Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) software. This integration syncs up customer data, sales orders, and invoices, providing a seamless flow of information. It means fewer double entries and more time saved.

3.3. Embrace AI and automation:

Consider AI and automation to take your AR processes up a level. AI can analyse payment patterns, flag potential risks, and predict cash flow trends. Meanwhile, automation handles repetitive tasks like sending reminders, making your team more productive.

4. Establish robust communication

4.1. Keep communication lines open:

Communication is the key to happy customer relationships. Maintaining open lines of communication with your clients, such as being proactive in sharing updates, confirming payments, and acknowledging their queries. Customers who feel heard and informed are more likely to cooperate with you.

4.2. Quick responses to customer inquiries:

Nobody likes to be kept waiting. Address customer inquiries promptly and efficiently. Whether it's via email, phone, or chat, be responsive. Timely responses build trust and show your commitment to excellent customer service.

4.3 Handle disputes and delays professionally:

Things don't always go smoothly, but how you handle it matters. When customer disputes arise or payments get delayed, handle the situation professionally. Listen to your customers' concerns, offer solutions, and keep the communication respectful. A positive approach can turn a challenging situation into an opportunity for better customer relations.

5. Conduct regular receivables analysis

5.1. Keep an eye on key accounts receivable metrics:

As the old saying goes, numbers don't lie, so it's important to monitor key accounts receivable metrics regularly. Track metrics like Days Sales Outstanding (DSO), Aging of Receivables, and Collection Effectiveness Index (CEI). These numbers give you insights into your AR performance and cash flow health.

5.2. Spot trends and potential issues:

Analyse accounts receivable data to spot trends and potential red flags. Are certain customers consistently delaying payments? Are there seasonal fluctuations in collections? Identifying patterns helps you take proactive measures in the long run.

5.3 . Make data-driven decisions:

When it comes to AR management, let data guide your decisions. Data-driven insights help you set realistic KPI’s, optimise credit policies, and tailor collection strategies. Allowing you to build a stringent roadmap for healthier cash flow.

6. Promote cross-functional collaboration

6.1. Team Up Finance, Sales, and Customer Service:

Foster collaboration between the Finance, Sales, and Customer service teams. Open communication ensures everyone runs in the same direction regarding customer credit, payment terms, and outstanding invoices. This alignment prevents misunderstandings and improves overall efficiency.

6.2. Share AR insights for better customer relationships:

Share AR insights with other departments to enhance customer relationships. When sales and customer service teams know customer payment status, they can proactively address queries. This transparency builds trust and strengthens the bond with your customers.

6.3. Involve your Sales team in AR goal setting:

Involve the sales team in AR goal setting to align objectives. When the sales team understands the importance of prompt payments, they can emphasise it to customers during negotiations. This mutual understanding improves the chances of on-time payments.

7. Focus on customer retention and loyalty

7.1 Cultivate long-term relationships with valued customers:

It's not just a one-time deal, by nurturing relationships with valued customers beyond the initial transaction. Stay in touch through personalised follow-ups, holiday greetings, or newsletters. Show genuine interest in their success and growth. Strong connections lead to lasting partnerships.

7.2 Gather feedback with customer satisfaction surveys:

Keep your finger on the pulse of what your customers really think. Implement customer satisfaction surveys to gather feedback about your products, services, and overall experience. Valuable insights can help you identify areas for improvement and understand what keeps your customers happy. Listening to their voices builds trust and shows your customers that you care.

8. Continuous improvement and training

8.1. Keep yourself and AR team sharp with regular training:

Conduct regular training sessions for your accounts receivable team or join workshops, panels and events to stay updated on the latest industry trends, best practices, and new technologies. Knowledgeable team members are more efficient and better equipped to handle evolving challenges and getting to grips with new software. 

8.2 Foster a culture of continuous improvement:

Empower your team to share ideas, feedback, and suggestions for optimising AR processes for better efficiency. Embracing change and innovation fosters a dynamic and forward-thinking environment. To do this, encourage a culture of continuous improvement within your organisation, where everyone involved in the AR process can speak their ideas.

8.3 Learn from industry best practices and innovations:

Ensure you and your team stay up-to-date on industry best practices and innovations. This can be easily done by attending conferences, workshops, and webinars to learn from industry leaders and experts. Adopting proven strategies and exploring new ideas will give you a competitive edge.

9. Set Key Performance Indicator (KPIs) for AR management

9.1. Define measurable objectives:

Set clear and measurable objectives for your accounts receivable management. Identify KPIs that align with your business goals, such as reducing DSO, improving collection efficiency, or minimising bad debt. Well-defined KPIs provide a benchmark to track progress and performance.

9.2 Monitor performance regularly:

After you’ve set your KPIs, regularly monitor and analyse accounts receivable performance against the set targets. Utilise reporting tools and dashboards to gain insights into your AR performance, identifying areas for improvement and celebrating successes.

9.3 Adjust strategies based on KPIs:

Be agile in your approach to setting targets. If KPIs indicate areas needing improvement, adjust your strategies accordingly. Use the data-driven insights to make informed decisions and optimize your accounts receivable processes for better results.

10. Build strong relationships with collections partners

10.1 Choose reputable collections partners:

Unfortunately, there may be times when customers simply do not pay. Therefore, selecting collections partners with a proven record and professionalism is imperative. Research and partner with reputable agencies that understand the importance of maintaining positive customer relationships while recovering overdue payments.

Do all this and more with Credit-IQ

With Credit-IQ, you can say goodbye to spreadsheets and streamline every step of your AR management, from sending payment reminders to optimising payment collections. Our intuitive solution empowers you and your team to stay ahead with data-driven decision-making using our advanced analytics and reporting features. It helps you accurately forecast cash flow, allowing for better financial planning and liquidity.