Here’s How You Can Clean Up Your Accounts Receivable Management

Business is booming, products are selling quickly, and accounts receivable (AR) are high. Clients’ promises to pay in the future won’t help you with immediate expenses like restocking inventory, asset tracking, paying suppliers and employees, or settling outstanding loans.

Accounts receivable might spiral out of control quickly if you aren’t paying close enough attention. Suppose you want to control your processes and cash flow. In that case, it’s necessary to periodically use accounts receivable software to audit and clean up AR, even if you think everything is working smoothly.

This article will examine how you can clean up your accounts receivable management.

Eliminate Outdated Data

Sweeping out the garbage is the ideal starting point if you want to clean up your AR. Without proper maintenance, the massive amounts of client information stored in your systems can quickly become obsolete and unmanageable.

Collecting new clients’ invoicing and personal information at the front desk isn’t adequate, and neither is asking for updates once a year. Your front desk staff should always ask clients to show their insurance cards, confirm their personal information, and then update the data immediately.

Once you’ve streamlined your procedure, conduct a thorough examination of your data to find unnecessary things you need to eliminate. Keeping records of clients who have left your business is unnecessary. Delete all such records that you can, and then check your records against your balances to get an idea of what you might or might not collect.

Are you awaiting payment from a payer that has since gone out of business or a delayed co-pay from a client who has passed away?

Instead of spending a lot of time, resources, and energy invoicing them repeatedly, it may be more cost-effective to write off such modest sums as losses and remove them from the books entirely.

Nevertheless, take necessary legal action and collections procedures to recover huge sums that may impact your business negatively.

Collect from Repeat Clients

It might sound apparent, but most businesses excuse clients with outstanding accounts from paying when they arrive for their appointment. Their demands to receive the invoice by mail frequently win even if you request them to pay immediately.

That can result in clients accumulating aging balances, which keep growing as long as you continue selling them on credit. To get your accounts receivable in line, you must collect these past-due amounts on the service date and cross them off your to-do list.

But what’s the best way to do it? Ensure your front desk staff has an early notification and the resources they need to secure payment on the day of a client’s visit. Remember, they are your client’s first point of interaction with your business and your strongest advocates in this area of collections.

Create a process where staff verifies upcoming appointments and any outstanding balances before calling to remind clients or sending notifications. When sending out messages, your team should inform clients with unpaid balances that you’ll require them to hand over payment upon their arrival.

Suppose a client with a past due balance refuses to pay upon arrival. In that case, the staff should be assertive about the need for payment and contact the AR department representative or management. Establish clear procedures on unpaid accounts and give staff members the necessary training to prevent a halt in your cash inflow.

Run Reports on Collections Trends

After eliminating useless data and recovering past-due payments, you must ensure that you maintain the integrity of the situation by generating accurate reports moving forward.

It can be a pain if you don’t monitor your collections’ progress. Usually, your AR team spends their time rushing to finish the invoicing and filing payment claims, leaving them with no time to follow up on unpaid accounts, evaluate the practice’s financial performance, or find ways to increase collections.

Maintaining an optimized collection process is crucial to keeping an eye on AR efficiency. You can achieve that by utilizing the analytics features of your accounts receivable software.

Make use of the software’s analytics so that you can identify the areas of AR procedure that need improvement. For instance, is your success in client collections slowing down due to high incidences of objections or a poor settlement rate on the first try?

Reviewing your accounts receivables once a month and your collection backlog once a week, among other reports, will help you identify troubling trends. Finding your areas of weakness allows you to devote your time and energy to improving them.

Furthermore, maintaining order in accounts receivable necessitates constant vigilance. Maintaining cash flow doesn’t require a clean sweep of AR revamp if you use efficient reporting and analysis to monitor and assess your procedures and results regularly.

Broaden Your Customer Base

In the collections game, smaller firms often come out on the losing end, mainly when working with major organizations that routinely extend their payment terms to suppliers and customers by 90 or 120 days.

While working with big retailers might be rewarding, having a diverse client base is also crucial. The best way to maintain a healthy cash flow while waiting for payments from a select few customers who tend to pay outside of a 30 or 45-day timeframe is to acquire more small customers and make sure they pay on time.

Determine Whether or Not To Extend Credit to a Customer

Frequently, most small businesses do not know if a customer has any bad debts. So, it could require more effort to determine if a client deserves credit.

Start a conversation with your client to determine what prevents them from remitting a payment. It would help if you made decisions based on each client’s circumstances using your best judgment.

The vast majority of your customers are not purposefully attempting to defraud you. Even some of your most significant clients may occasionally be late with their payments for various reasons.

For instance, the client might be undergoing a personal or family emergency, have recently been laid off from their job, or have trouble with their financial institution, preventing them from making timely payments.

There is also the possibility that you sent the invoice to the incorrect phone number or email address due to a paperwork error on your part.

You will always have access to up-to-date customer contact information if you utilize accounts receivable software in conjunction with a customer relationship management system. That will guarantee that you send the correct bills to the appropriate customers.

Send Detailed and Well-Formatted Invoices

To make a good impression on your customers, you must send them a polished invoice. Add a complete list of services, including service dates and the pricing of each line item on the list of services. That helps in ensuring there are no misunderstandings or disagreements during collection.

Your bill must respond to the following inquiries for it to be effective:

  • What are your customers paying for?
  • When is the payment overdue?
  • How are they going to pay you?

White Label Overdue Payments

Hiring an agency to represent your firm might boost overdue accounts collection. White labeling is when one business agrees to rebrand another business’s product or service under its name. 

When you outsource your AR management from a reputable agency with the necessary experience in accounts receivable and collections, they will contact the clients liable for the outstanding invoices on your behalf.

Cleaning up accounts receivables under a white label may result in:

  • Greater recovery of collections
  • Invoicing best practices
  • Problem-solving for late payers
  • Lower days sales outstanding (DSO)

Move Quickly on Overdue Receivables

Research shows that the longer receivables sit unpaid, the less probable you’ll recover them in full or even in part. As a result, if you know of any overdue receivables and can move swiftly, you’ll have a better chance of recovering your money.

Whoever you hire to handle your accounts receivable ought to know that they must get in touch with the client the same day payment is past due. If your business has a policy on late payments, politely remind the customer of any fines they might incur for any late payments.

You may need to use forceful communication if clients don’t make payments promptly. That may include sending the client an email or warning informing them that you intend to take legal action if you don’t receive it within the deadline.

Furthermore, talking to customers about why their payments were late might help you prevent the problem in the future and bolster your company’s client ties.

Final Thoughts

Even if it’s a little late for spring cleaning, it’s still imperative that you clear the clutter and remove any obstructions in your accounts receivable management. Incorporating autonomous finance into your AR process can boost output and provide insight to make more informed decisions.

Using technology to automate the most time-consuming tasks in a company’s everyday operations can have spectacular benefits. Accounts receivable software eliminates the need to manually sort through old emails and spreadsheets to locate overdue bills and the relevant information.

Brett Sartorial

Brett is a business journalist with a focus on corporate strategy and leadership. With over 15 years of experience covering the corporate world, Brett has a reputation for being a knowledgeable, analytical and insightful journalist. He has a deep understanding of the business strategies and leadership principles that drive the world's most successful companies, and is able to explain them in a clear and compelling way. Throughout his career, Brett has interviewed some of the most influential business leaders and has covered major business events such as the World Economic Forum and the Davos. He is also a regular contributor to leading business publications and has won several awards for his work.