Effective AR management offers timely payments, healthy cash flow, and strong client connections. Poor AR management can lead to delayed payments, lost revenue, and financial instability.
The AR Pulse Check Survey found that 52% of respondents view digitizing AR as key to optimal financial performance.
This blog discusses AR management and strategies to optimize the process.
Table of Contents
What is Accounts Receivable Management?
Accounts receivable is money owed for goods or services on credit. Effective management tracks invoices, ensures timely payments, and handles overdue accounts.
According to Bloomberg, Open banking is making payments faster, safer, and easier. It lets banks and businesses share data, improving services and creating new business opportunities. It speeds up loan applications, financial checks, and cash flow management. This makes life easier for both businesses and consumers. Open banking also makes payments safer by reducing fraud and mistakes. Pay-by-Bank allows direct payments between bank accounts. This skips slow, risky steps, lowering costs and speeding up payments. In July 2023, people made 11.4 million Pay-by-Bank payments in the UK double the amount from the previous year. Governments are also helping open banking grow. In Europe, new rules are improving data-sharing safety. The UK promotes digital payments, while Saudi Arabia targets 70% cashless transactions by 2030. Adopting open banking solutions like Pay-by-Bank can attract consumers. Offering rewards or discounts encourages the use of this faster, safer payment method. It’s a great time for businesses to invest in secure payments.
According to Harvard, In the past, businesses didn’t focus on cash management due to abundant money. Now, with money tighter and customers spending less, businesses must rethink how they use cash. Professors Kaiser and Young from Insead say many businesses have too much money tied up in receivables and inventory. They point out six common mistakes. First, focusing too much on profit reports can lead to holding too much stock. Second, rewarding salespeople only for growth can result in risky deals. Third, focusing too much on product quality can cause delays. Fourth, connecting receivables to payables complicates customer relationships. Fifth, relying too much on traditional financial ratios can cause money problems. Lastly, copying competitors can make businesses lazy. Fixing these mistakes can help businesses free up cash.
Responsibilities in AR Management
- Invoicing & Billing – Creating and sending accurate invoices.
- Payment Tracking – Monitoring due dates and outstanding balances.
- Client Communication – Following up on late payments.
- Collections & Credit Policies – Managing overdue payments and setting credit terms.
The goal is to collect payments, maintain customer relationships, reduce late payments, reduce bad debts, and improve cash flow with efficient processes.
Why Does It Matters? Steady cash flow supports growth and relationships. Poor management causes delays and missed opportunities.
Case Study
1.GeBBS Healthcare Solutions
GeBBS faced slow cash flow and high unpaid balances. By improving their A/R processes, they identified payment issues and followed up with insurers. They also streamlined claims. As a result, they reduced outstanding A/R from $68.2M to $14.9M in 11 months. They collected $11.9M and achieved a 27-to-1 ROI.
2.Solving Accounts Receivable Issues in the Food Industry
Our client faced cash flow issues due to delayed invoices, untracked deductions, and slow follow-ups. We ensured timely invoices, tracked deductions, and enforced strict follow-ups to speed up collections. We processed payments in 24 hours and improved visibility with weekly reports. We reconcile customer accounts to fix errors and gain portal access for faster issue resolution. We also created an invoice tracker to track pending payments. A system to detect duplicate invoices prevented overbilling.
As a result, our client saw faster payments, better tracking, and improved cash flow. With Expertise Accelerated, they now manage AR smoothly and focus on growth. Need AR help? Book a free consultation today!
Best Practices for Efficient AR Management
- Use Electronic Invoicing & Online Payments
Switching to electronic invoices speeds up payments and reduces errors. Offering multiple online payment options helps customers pay on time.
- Track Key AR Metrics
Monitoring critical financial metrics helps identify potential cash flow issues early. Some key metrics include:
- Days Sales Outstanding – Measures how long clients take to pay.
- Aging Reports – Categorizes overdue invoices by period.
- Collection Rates – Tracks the percentage of invoices collected on time.
- Set Clear Billing Procedures
Standardized billing procedures reduce confusion and disputes. Set clear payment terms, invoice formats, and a follow-up process for overdue accounts.
- Establish Credit & Collection Policies
Decide when to extend credit and to whom. Conduct credit checks on new clients and set credit limits to reduce risk. Also, define a clear escalation process for overdue accounts.
- Be Proactive in Collections
Delaying follow-ups on overdue invoices can cause cash flow problems. Set up a process with reminder emails, calls, and escalation if necessary.
- Automate Your AR Process
AR software tracks invoices, sends reminders, and flags due accounts, decreasing mistakes and providing updates.
- Make Payments Suitable for Clients
The easier customers pay, the faster you’ll get paid. Offer options like auto-pay, recurring billing, and multiple gateways.
- Involve Other Departments in the AR Process
Your AR team should collaborate with sales, finance, and customer service. Sales teams set customer expectations, while finance teams assess credit risks. Aligning both ensures smoother payments.
5 Ways to Speed Up Payments
- Ask for Prepayment
Request a deposit before starting work or shipping products. Offer small discounts for early payments. Set your prices with the discount in mind so you don’t lose money.
- Set Clear Payment Rules
Give customers written payment terms upfront. This prevents confusion and excuses. Highlight key details like early payment discounts and late fees.
- Send Invoices
The sooner you invoice, the sooner you get paid. Use an accountant or invoicing software if you struggle to keep up.
- Reduce Payment Time
Instead of 30 days, ask for payments “Due upon receipt.” Sudden changes can upset long-term customers by disrupting trust and familiarity. Sudden changes, like in pricing or service, can make customers feel uncertain or betrayed. Uncommunicated changes can cause confusion or fear of negative impacts. Explain the changes, and their benefits, and give customers time to adjust. Providing alternatives and listening to feedback promotes customer loyalty during changes.
- Charge Late Fees
Credit card companies add late fees to encourage on-time payments. Send reminders before payments are due to avoid issues.
Handling Late Payers: If a payment is a few days late, send a friendly reminder. For invoices that are 60-90 days late, call and ask when they plan to pay. If the payment reaches 90+ days, send a final notice and consider taking legal action. Be firm but polite, and take action if delays persist.
Managing your payments well keeps your business running smoothly. Stay on top of invoices, and don’t let overdue payments pile up!
Should You Use AR Software or Outsource AR Management?
Use AR software or outsource based on your business size and resources. Software alone won’t fix AR problems. You need experts to manage accounts receivable and avoid cash flow issues. AR software reduces errors, automated invoicing, and tracks payments in real-time.
Outsourcing AR management saves time, improves collections, and lets businesses focus on growth.
Both options can help ease the AR process and improve financial efficiency.
Conclusion
A well-managed AR process ensures steady cash flow and minimizes financial risks. Best practices, whether automated, outsourced, or in-house, ensure faster payments and stability.
Outsource your accounts receivable to boost your business. Expertise Accelerated helps speed up collections and improve cash flow. Our expert support helps you get faster payments and more cash to grow your business. Need help optimizing your accounts receivable process? Let us handle it so you can watch your revenue grow. Book a call with our AR experts and get started today!