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5 ways to maximize accounts receivable collections

Tuesday October 23, 2018

Often, businesses don’t realize how much capital can be trapped in their balance sheets. Improving and streamlining the accounts receivables process frees up cash, which leads to improved overall functioning and operational efficiencies. It provides companies with the liquidity they need to fund growth, expansion or diversification, lowers debt and allows a business to meet working capital requirements and reduce costs overall, while maximizing shareholder returns. 
Many businesses have processes and policies that mandate when to bill, how much to bill and when, or how, to collect. However, not all businesses have these processes in place, or enforce them as effectively as they could. Oftentimes, businesses prioritize sales over collections, falling into the trap of extending credit to customers, who may have defaulted in the past, ignoring payment terms if it means a new sale, failing to check invoices accurately or monitor reports to identify problematic clients.  
However, if the accounts receivables department does not focus on working capital, your business will be providing customers with financing, often without charging any interest or accruing any benefit. If you need to borrow money to meet operational expenses because customer payments are overdue, your company is liable for finance charges, which can accumulate over time, ultimately leading to losses over the year. Even if this doesn’t apply to your company, carrying overdue accounts will decrease your liquidity as your money will be tied up in your balance sheet. This means that you may not have free capital when you need it to invest in growth or expansion, increase shareholder dividends, purchase equipment or introduce new products or innovations.  
Here are five steps to maximize your accounts receivable process.
1.      Thoroughly track accounts receivables 
An efficient system is essential for maximizing your accounts receivables, because it’s important to monitor late payments and take action. Your master data should reflect credit limits, payment terms, discounts, tax and returns policies and other relevant customer information, as well as invoices sent, paid and outstanding. This allows invoices to go to the right place, with the correct payment terms and credit profiles. Ensure this is regularly updated and accurate so that all departments, sales and finance in particular, can access the correct information. This assists in creating an accounts receivable process that is efficient and structured. It’s also important to regularly audit your data, which allows you to see which customers have high credit limits, their payment terms, and check which discount rates have been applied. Any changes to customer data must immediately be entered into the system, and these changes should also be approved by finance and operations - as this can impact cash-flow forecasts.   
2.    Invest in a proactive, streamlined collection process 
A proactive approach to the accounts receivables process is essential to ensure they are collected on time. Inadequate reporting can make it difficult to determine which amounts are collectible and which may be in danger of default. Similarly, lack of clarity, adherence to and accuracy in a company’s credit or collection policies makes it difficult to establish which payments are late and which will never arrive.  Before staff members can follow up on late payments, they need to be sure that accounts receivable reports are accurate and there aren’t days, or even weeks, worth of cash receipts not yet applied to customer accounts. This requires a robust accounting process. It is essential that collection efforts are frequent and consistent, that payment plans are negotiated for late payments, payment discounts offered where applicable and accurate and automated processes are followed. In addition, payments should be facilitated through easy payment methods such as the multi-channel, digital payment solutions like the one that we at SCORE provide.   
3.    Move quickly on overdue accounts

The longer that receivables remain overdue, the less likely they are to ever be collected. A robust accounts receivables department, which follows up on clients immediately, is essential for overdue accounts. Once a client becomes delinquent, firmer communications or even legal action may be required. SCORE offers consultation to improve your collections and recovery process, acting as your partner to help manage, and maximize your receivables. We manage the activity in your accounts receivable management from charge-off portfolios to handling your entire back-end processes.
4.    Focus on accounts with the greatest recovery potential

Knowing which customers are most likely to pay allows you to focus your collection effort on the accounts with the greatest possibility of recovery. This means your accounts receivables department can target the most profitable accounts first. SCORE helps you predict which accounts are most likely to cure and collect, so you can maximize your accounts receivable management.  
5.    Consider outsourcing 
Many businesses don’t have the time, resources and expertise to recover unpaid debts. Instead of employing an in-house team, you could consider outsourcing your debt to Business Process Outsourcers (BPO). A BPO can help with receivables collections by using effective ways to collect payments that don’t affect your relationship with your clients.  
At SCORE, we help businesses maximize their returns through advanced collection technology, analytics, and a comprehensive BPO solution. Contact us today on 647.309.1803 to get the conversation started. 
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