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
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.