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Learn moreUse these 17 accounts receivable best practices to accelerate collections, reduce past-due accounts, improve customer relationships, and optimize your AR processes.
1. Create a system for customer onboarding
Thorough customer onboarding helps prevent payment issues before they happen. Be sure to include credit checks, trade references, and clear communication about payment expectations.
By gathering comprehensive information up front, you can assess credit risk from the get-go and establish appropriate payment terms.
Create a standardized onboarding checklist for collecting essential documentation, verifying business information, and setting up payment methods. This systematic approach ensures that no critical steps are missed and helps build strong customer relationships from the start.
2. Maintain accurate customer data
Current and accurate customer information is essential for effective collections. This includes current contact information, payment preferences, and any special billing requirements.
Implement a regular schedule for reviewing and updating customer information, and create processes for capturing any changes and reflecting those updates across all systems.
3. Document all customer interactions and payment agreements
Maintaining detailed records of all customer communications and payment arrangements protects your business and helps ensure consistency in collections. This documentation can prove invaluable when resolving disputes or determining next steps with overdue accounts.
Implement a centralized system for recording all customer interactions, including phone calls, emails, and payment promises. Make sure every accounts receivable team member understands the importance of detailed documentation and follows consistent recording procedures.
4. Establish clear credit policies and terms
Make sure your credit policy outlines specific criteria for extending credit to new customers and expanding credit for existing customers. Your policy should include guidelines for credit limits, payment terms, and consequences for late payments.
This helps prevent collection issues while ensuring that you’re treating all your customers fairly and consistently.
Start by documenting your current credit policies and identifying any gaps. Consider industry standards, your customer payment history, and your company's risk tolerance.
Once you’ve established your credit terms, be sure to communicate them clearly in all customer agreements and invoices.
5. Use early payment incentives for better cash flow
Strategic early payment discounts can improve cash flow and strengthen customer relationships. Consider offering discounts for early customer payments or volume purchases when appropriate for your business model.
Calculate the cost-benefit ratio of different discount options and implement those that make financial sense for your business. Clearly communicate your discount terms to eligible customers.
6. Digitize your invoicing
Moving from paper to digital invoicing accelerates the entire AR cycle. Digital invoices reach customers faster, reduce errors, and make it easier to track payment status.
They also create a clear audit trail and enable automated follow-up accounts receivable processes.
Consider implementing AR automation software that can generate and send invoices automatically and encourage prompt payments.
7. Standardize your invoice format and information
Consistent, professional invoice formatting makes it easier for customers to understand and process payments. Each invoice should include your payment terms, due date, purchase order numbers, and a clear itemization of charges.
This standardization reduces confusion and speeds up the payment process.
Review your current invoice template and ensure it includes all essential information while remaining easy to read. Consider feedback from customers about what might help them process payments more efficiently.
8. Offer multiple payment options
Making it easy for customers to pay improves collection speeds. Include a payment link in each invoice, and offer your customers various payment processing options such as credit card and auto-pay by direct draft (ACH).
The more convenient you make it for customers to pay, the more likely you are to collect timely payments.
When implementing new payment options, make sure your AR system can properly track and reconcile payments from all sources. Train your team on processing each payment type and communicate your new payment processing options clearly to customers.
9. Set up automated payment reminders
Automated reminders help prevent late payments by alerting customers before and after due dates. This proactive approach maintains consistent communication without requiring manual effort from your team.
These reminders can significantly reduce days sales outstanding (DSO) and improve cash flow.
Implement a tiered reminder system that sends notifications at strategic intervals—perhaps 7 days before due date, on the due date, and at 15 and 30 days past due. Customize your reminder language to maintain professionalism while escalating urgency appropriately.
10. Create an aging schedule and monitor it regularly
An aging schedule provides clear visibility into the status of your outstanding invoices. By categorizing receivables by age (30, 60, 90 days), you can quickly identify accounts that require attention and allocate your collection resources effectively.
Set up AR processes to generate aging reports automatically and review them each week. Establish clear protocols to manage accounts receivable as they age into different categories.
11. Develop a consistent collections process
A standardized collections process ensures that all overdue accounts receive appropriate attention and all customers are treated fairly. This process should outline specific actions to take at different stages of delinquency, from friendly reminders to formal collection letters.
Create a collections timeline with clear escalation points and required actions at each stage. Train your team on following this process consistently while maintaining professional customer relationships.
12. Define your escalation process for overdue accounts
Having well-defined escalation procedures helps you make sure that seriously overdue payments are handled promptly and appropriately. This process should outline when to escalate unpaid invoices to senior management, when to engage third-party collectors, and when to consider legal action.
Document your escalation process and make sure all your team members understand the triggers for each level of escalation. Include specific criteria for determining when to stop extending credit to problematic accounts.
13. Train staff on your accounts receivable process
Make sure your team understands your policies, procedures, and best practices for professional payment collection. This includes both technical training on your AR systems and soft skills for customer interaction.
Develop a comprehensive training program that covers all aspects of your AR process, and be sure to schedule regular refreshers and updates as procedures change.
14. Perform regular account reconciliations
Regular reconciliation helps identify discrepancies early and ensures your AR records are accurate. This practice prevents small issues from becoming major problems and maintains the integrity of your financial reporting.
Schedule weekly or monthly reconciliations and create a checklist of items to review. Address any discrepancies promptly, and document all resolution procedures.
15. Establish KPIs for your accounts receivable management
Key performance indicators help you measure the effectiveness of your accounts receivable management and identify areas for improvement. Common metrics include days sales outstanding (DSO), collection effectiveness index (CEI), accounts receivable turnover ratio, and bad debt ratio.
Define your most important metrics and set up regular reporting to track them. Use this data to make informed decisions about process improvements and resource allocation.
16. Conduct regular customer credit reviews
Reviewing customer creditworthiness at regular intervals can help identify potential risks before they become problems. This practice is especially important for customers with large credit limits or significant payment history changes.
Set up a schedule for regular credit reviews based on customer size and risk level. Document your review process as well as criteria for adjusting credit terms based on your review findings.
17. Generate and analyze AR reports regularly
Regular reporting provides insights into AR performance and your company's cash flow cycle. This analysis helps identify patterns, reveal issues, and improve AR policies and procedures.
Determine which reports are most valuable for your business and establish a regular schedule for reviewing them.
Ready to improve your process with AR automation software?
BILL Accounts Receivable automation software can help you implement these receivables management best practices by:
- Automating invoice creation and delivery
- Sending automatic payment reminders
- Providing real-time aging reports and analytics
- Offering multiple digital payment options
- Maintaining detailed payment and communication records
- Generating comprehensive AR reports
Streamline your financial operations and improve your company's financial health with a faster, more efficient accounts receivable management process.
