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Strategies for Optimising Accounts Receivable for Your Business

Updated on :  

08 min read.

Accounts receivables are an integral part of any business. While providing credit incentives to customers promotes business, improper management of accounts receivable can cause a waste of time and money. Hence, accounts receivable optimisation using appropriate strategies can help prevent such threats and reap the benefits of one’s credit policy.

What is accounts receivable optimisation?

Optimisation of accounts receivables consists of steps and procedures by implementing strategies to take advantage of credits given to debtors. A good strategy considers various factors such as customer expectations, customer relationships, incentives, cash management, and risk appetite. It also requires the sales and finance teams to coordinate and develop a strategy beneficial for the departments and the customers. Any strategies that encompass the above factors will reap benefits in the short term and long term.

Need for optimising accounts receivables

Accounts receivable optimisation is key to liquidity management. Effective management of accounts receivables helps prevent a shortage of cash. Giving credit to customers invites additional cost in the form of opportunity cost, which refers to the cost of the next best alternative forgone. If funds are trapped in receivables, businesses may lose the opportunity to invest these funds in alternative sources and earn additional returns. Hence, developing strategies for optimising receivables is important to ensure funds are not trapped as accounts receivables for a long time.

Advantages of optimising accounts receivable for your business

  • The most important benefit of optimising receivables is maintaining a healthy cash balance with proactive collections. This ensures working capital availability for daily activities.
  • Funds will be managed more efficiently. Money can be invested in opportunities that offer returns.
  • It helps mitigate credit risks by preventing overdue debt balances and preventing funds from getting blocked in the form of debtors.
  • Accounting and reconciliations are made easy due to the impact of optimising strategies.
  • Customer relationships are given importance, and healthy business is ensured between the customers and the organisation.
  • These strategies have an overall impact on the organisation through reduction of costs, fund management and growth.

Best strategies to optimise accounts receivable 

Following are some of the steps that can be followed to optimise accounts receivables effectively:

  • Starting the process early: The important point to keep in mind is to implement the strategies early in making sales and building customer relations. This ensures proactive actions are taken with regard to a situation. This involves discussing payment terms, credit period, incentives, and other terms in the early stages of sales.
  • Automating processes: Reliance on technology for processes such as billings, records, and payments can help streamline these processes and help in preventing errors or mistakes. This can also promote efficiency in the process and save costs in the long run.
  • Credit approvals: Credit approval can be based on the organisation’s risk appetite, fund requirement, the volume of sales made to a customer, regularity of purchase and creditworthiness. Policies must be established to cover all possible situations and are to be followed stringently. The same must also be reviewed regularly and revised if necessary.
  • Maintenance of customer data: All customer data is to be maintained and managed in a centralised manner. This includes:
    • A person or team exclusively manages this data.
    • A customer master consists of the purchase amount, credit given, payment terms, incentives, etc.
    • Regular review and audit of the master data. 
    • Controls are put in place to assure data accuracy and reliability.
  • Payment process: All payment mediums, including online and offline modes, must be made available to the customer. Special care must also be given to offline transactions by reconciling in real-time. Customers may also be offered discounts on early and prompt payments, which can improve customer relationships.
  • Regular review of accounts: Accounts receivables and processes must be monitored and reviewed regularly. This helps identify abnormalities in customers’ terms and behaviour and take appropriate corrective actions.

Optimisation of accounts receivables is not an easy and quick process. Receivables and credits being the biggest parts of the business are required to be given extra attention to boost the performance of the business. The above strategies are not foolproof methods for every organisation, but they can reward your business handsomely in the short and long run with persistent efforts.