“The management of accounts receivable, inventory and accounts payable is the least expensive way to manage cash flow .Account receivable should be monitored closely and actions should be taken to improve the collection of receivable and to encourage positive cash flow in a business.
“Uncollected receivables are the main reason business owners are making money but don’t have any money on hand,” In addition to its effect on finances, the way a company handles its accounts receivable also has an influence on customer relationships. Today you can no longer take customer loyalty for granted, but it can be easily be preserved in long-term by offering a quality customer experience. So Account Receivable should be managed to get productivity, business efficiency and good customer experience.
it is very important for an organization to make discipline since inception in organization to aggressive follow-up , reduce days outstanding. But sometime it is also seen that in spite of good collection team there are various issues due to which there are delay in payment at the end of customer . so an organization continuously review its receivable and its process hurdles, it should examine benchmarks for similar companies , key performance indicators such as days sales outstanding, number of invoices processed , cost for processing each invoice etc and to make efforts to reduce invoice production and delivery costs, ensure better customer service follow-up ,reduce the average time it takes for customers to pay
Optimizing Accounts Receivable Processes
Automation of Billing System
Standardizing invoice data used in sales, accounting and logistics departments also can boost positive cash flow. Organization should make system of automatically generating invoices when goods are shipped or Service is provided .Use of tools such as invoicing portals, electronic invoicing and electronic payments is helping to make accounts receivable management faster, smoother and less error-prone today than ever before.
Digilise customer contract detail
Missing data in various files remains the greatest issue in organization. The data comes from a number of systems which don’t communicate with each other. When Customer Service team wants to answer a customer question, precious time is lost just because of this missing information . Bringing together these information spread over a number of systems, in different formats and fill all missing information must be first priority of Organization. Create a procedure for Customer Service employees in which they should ask for the customer’s email , key person Mobile No and other detail through telephone calls.
Integrity control of Essentail Data for Invoice
Automate integrity control of the most essential data in your invoices.
Receive an automatic alert when there’s an error or discrepancy between the purchase order and the invoice so that you can deal with the problem as soon as possible.
By sending an invoice by email, you can reduce the average payment time. So E-Bill should be sent to each customer where Customers still ask to receive paper bills they should be sent paper bill separately
Customer no longer want to receive endless bills with multiples pages, in black and white, and without any customization. Billing should be made with value-added content, customer want to read like customized marketing messages, praise for their loyalty etc
Use the option to receive receipt confirmations of email and you’ll be able to prove that your customers received their invoices on time.
Automate your customer communications
Transactional messages are 8 times more likely to be opened than other types of communication so connect with customer through Transaction Message.
It’s important to communicate with your customers throughout the purchase process. For example, you could automate payment reminders 15 days before the deadline, and send this reminder through various communication channels (e-mail, post, SMS …). Most customers would appreciate a reminder that the date is approaching, not just receive a notice from you when the bill is past due.
Simplify your payment methods
Just like you, customer time is precious. Most of them would pay their bills faster if the payment process was simplified. If their invoice is sent via the Web, consider integrating a button that redirects directly to an online payment site. You will save your customer’s time and get paid faster!
In House Alert toward not receipt of Payment
Receive an alert when the payment due date arrives or passes and the payment has not been made. This alert can also be sent to the customer with the details on possible penalties.
Reasons for late Payment.
As per Industry Experience I have identified some reason for Late Payment
Lack of Proper Infra/ Resources in Billing Team
1. Lack of Proper Infra to Billing team like printer stops working in the middle of printing account statements. You wait for technical support all afternoon and then spend the evening starting all over again.
2. Less Resources in Billing Team
Casual Approach of Billing team Member
1. Inadvertently send the wrong invoice to the wrong client
2. Wrong Bill to customer , In correct Calculation , bill not as per sales order etc, Initial order number on the invoice is missing ,Tax not correctly charged, Bills raised two time
3. Proper supporting not attached with Bill
4. Customer instruction related to billing not followed like customer request for purchase order, delivery slip and other supporting documents.
5. Amount billed in various parts
6. There is no fixed billing cycle some time billed in last day of month some time billed in first week of next month
7. Tax rate different in one and other bills
8. Invoice sent on different mail id or address one or other month
Poor Payment Accounting
1. Unreliable payment information
2. Payment booked on account and not against particular bills
3. There is no system of receiving payment against invoice and booking payment against invoice
4. Some customer make payment in form of Demand Draft , online payment , payment receipt must be booked only on receipt of bill detail , Demand Draft deposited in bank even without noting the DD No in records
5. Collection manager ignore to provide the bill detail
No proper resolution of Wrong Bill
6. No billing resolution on time , or casual approach to sort out the billing issue is also a reason of delay in Payment and it results waste of productive time in correcting errors on invoices than providing quality customer service that could grow the business.
Agreement with customer
7. Terms and condition with customer not fixed on writing but verbally
8. No consent on Tax Rate
Effective way to Improve Account Receivable Processes
Billing make the perception of organization in the mind of customer , If you have good billing system , it will make good perception in the mind of customer , if billing is poor , it will make poor impression in the mind of customer ( Even your supplies / services may of best quality)
1. Invoice submission to customer should never be a issue , least soft copy of bill must be sent to customer on time
2. Invoice should be submitted with proper supporting documents even when bills is sent by email, supporting documents should also be sent with bills
3. Customer order reference should always be mentioned on invoice
4. Tax should be charges correctly in case of any doubt , it should be mutually agreed with customer
5. Maker and checker system must be there in Billing system, billing should be checked before it is sent to customer
6. There should be fixed billing frequency or billing date or say billing cycle , it should not change month to month
7. Invoice / bill should be sent to same person , you may copy to other person but it should not happen that one month you mail to Mr X and second month you mail to Mr Y
8. It should be discipline to Reduce your Days Sales Outstanding (DSO) and Continuous follow up with customer
9. Collection target must be age wise not simply customer wise
10. Dedicated resources must be there to make Regular reconciliation of Customer Account, and there should be system of Frequent balance confirmation from customer
11. No On-account/Adhoc payment from Customer – If customer issue on account payment , one should ask against which bill it will be adjusted
12. No direct deposit of payment in Bank account – One should keep least DD No , data and ask for bill detail against which this payment will be adjusted
13. It should be the practice of collection team to receive payment from customer with bill detail
14. Terms and condition with customer should be finalized on writing any other instruction like tax, billing address etc should be asked in writing from customer and billing team should follow it without forget.
15. If there is volume of bills , Dedicated resources should be there for billing resolution
16. In case of disagreement of Bill amount, debit /credit note should be issued