Following best practices when handling accounts receivable in-house is crucial to accurate, ethical bookkeeping, positive customer relations, and thriving business operations. There are several reasons why a business might handle accounts receivable themselves, from saving money on staff and resources, to wanting to keep financial information in-house and confidential.
While it’s always recommended that an accounting professional handles A/R duties and that certain measures are in place to prevent fraud, there are several best practices that can ease the task of handling accounts receivable in-house.
1. Handle Invoices Electronically
In general, paper checks and invoices have become outdated. Most bills are digital now, and many customers handle all their finances from their phone. If your company hasn’t made the switch yet to electronic records, the time to do so was ... yesterday.
Electronic invoices provide several benefits:
Immediacy. Because of ACH payments, businesses no longer have to wait 30 days on a check anymore — and vice versa. Electronic invoices also eliminate the lag time found in snail mail.
Convenience. Most businesses and individuals handle finances electronically, so it’s easier for customers to make payments on the platforms they already use.
Easier Record-keeping. Electronic invoices are easier to track and provide data for providing records. Most programs also integrate with accounting software, cutting down on administrative time and helping ensure accuracy.
2. Shorten Payment Terms
Moving away from paper-based accounting means you can shorten payment terms.
Lengthy payment terms, such as 30 days upon receipt, were implemented to accommodate for mailing time. Since electronic payments are instantaneous, more businesses opt for Payment Upon Receipt. This speeds up accounting, increases cash flow and cuts down on delinquent accounts.
3. Accommodate Multiple Payment Methods
The more methods of payment your business accepts, and the easier it is for customers to pay, the faster you are likelier to get paid — sooner, rather than later.
If anything, providing multiple payment options improves the overall customer experience by offering more convenience, setting your business apart from those still offering single ways to pay.
4. Incentivize Early Payments
Think you can’t control when and how your customers pay? Think again.
By implementing incentives, you can help guide the payment process you desire. For examples, provide discount incentives for early payments to help get paid faster.
5. Be Discerning When Extending Credit
One of the trickiest aspects of managing accounts receivable in-house, especially for smaller businesses is dealing with credit. While it can be tempting to offer credit to regular customers, it’s wise to conduct a formal background check first.
(Don’t think you extend credit? Guess what? If you have ever provided a service or product before receiving payment, you’re extending credit.)
It’s best to ask for a signed contract or partial payment up front to avoid payment problems later.
6. Stay Awake and Aware
Accounts receivable is never set-it-then-forget-it. When it comes to your business’s finances, staying on top of record-keeping, payments, and collections can literally make or break your business.
Knowing when to spot inaccuracies comes with time but pay attention to numbers that don’t look right or gut feelings something seems “off.” Double-checking is also a good practice.
7. Document All Touchpoints
When trying to collect on accounts receivable, it’s important to make human contact, which means by phone call if possible. Personal contact often helps with payment accountability.
Regardless of the type of contact, make sure to record every step of the payment and collection process, including:
- Collection records
- Requests for payments
- Phone calls
This information can come in handy if a case goes to collections or court.
8. Outsource A/R to Experts
One of the best ways to handle accounts receivable is to outsource the job to experts, like Interstate Billing Service, Inc. Outsourcing not only ensures experts handle your business’ finances, it can also help maintain good customer relations — which can be strained due to the collection process.
When an outside company handles accounts receivable, you’re also outsourcing the drama that goes with collections. It can save time and allow your business to focus on more important matters.
How do you handle accounts receivable in-house? What lessons have you learned along the way when it comes to managing accounting, customers, and expectations?