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Accounts Receivables affects cash flow of any organization. Slow customers would require you to draw down your cash reserves to sustain ongoing business operations. Besides, as customer account balance get older, the probability of collecting those accounts diminishes.

Here are some of the best practices could improve the receivables process and thus help improve cash flow, and maintain a healthy the bottom line:

Raising Invoices from the System
Now a days most of the financial system facilitates issuing invoicing directly from the system on meeting a pre-determined criterion i.e. on delivery of goods or end of the month, etc. This will ensure your customers receive your invoices on time without manual intervention.  In addition, generating invoices through the system reduces chances of errors in invoice preparation.

Multiple Online Payment Options

An increasing number of businesses are now receiving and paying using Electronic Funds Transfer. By specifying on your invoice that payment could be made electronically, you will enable your customer to deposit payment directly to your bank account. Always include your banking information and other online payment option (PayPal and/or Credit Cards options) on the invoice.

Credit Control

If you are going to extend a customer credit, assess their ability to pay. It is worth spending time and money assessing credit worthiness of your customers than delayed / no collection of Account Receivables.  Keep in mind Credit Control is an ongoing process.  Many businesses make mistake of doing the initial Credit Check and then assuming situation would remain same with Customers going forward.

Regular Review of how to manage Accounts Receivables 

It is utmost import to regularly review ways to improve your Account Receivable balances.  It helps in timely follow up and intervention as needed.  It is highly recommended to review the customer invoice aging daily.  A clear credit policy should be laid out to help identify accounts which needs follow ups.

Follow-up of Overdue Payments

Once overdue accounts are identified, it is important to systematically follow-up with the respective customer for the collection. The initial follow-up could be a gentle reminder leading up to a legal action if the situation demands.

Keep a log of when follow-up calls or emails were sent, along with a record of customer’s responses to follow-up calls. This is invaluable if additional follow-up calls or any legal actions are required.

Incentivize or Restructure how to manage Account Receivables

Many businesses offer incentives to Customers who make payments before the due dates.  The popular 2% discount for payment within 10 days could boost collection.  This creates a motivation in Customer to settle dues early.

In many cases management could also restructure payment schedule (delay the payment dates) considering unforeseen difficulties faced by its customers.  This kind of restructuring is generally offered to existing customers and an element of interest could be added to cover finance cost.

Discounting / Factoring Accounts Receivables

Many commercial banks offer trade facilities to businesses.  Amongst the popular services are discounting / factoring how to manage Accounts Receivable wherein banks buys out receivable from the business at a discount. This releases much needed cash to the business. The costs involved may be justified by greatly improved cash flows.