Accounts receivable represents funds owed to the business by customers for sales made. The accounts receivable department is responsible for collecting accounts receivables of a business and plays a major role in channelling revenue into the business. Hence, following the accounts, the receivable process helps maintain a healthy cash flow to support the business.
The accounts receivable process consists of steps and practices that businesses adopt to ensure timely revenue collection from their customers. This process starts from the point of policy establishment and ends with accounting for the collection of accounts receivables.
This process aims to bring cash to the business on time and invoices don’t become overdue. This directly helps maintain liquidity and promote the profitability of the business. A proper accounts receivable process helps identify the creditworthiness of customers and ensures payments are made promptly while maintaining healthy customer relationships.
A business must follow the steps mentioned below to optimise the collection of accounts receivables:
A quick invoicing process is a key to quick settlements. Hence, invoice creation and delivery processes must be accelerated. Businesses have recently adopted the e-invoicing system. Electronic invoices offer cost-efficient methods for invoicing since they offer convenience, quicker invoice generation, prompt delivery and invoice tracking.
(1) Tracking and monitoring accounts receivables: Regardless of the size, every business must undertake this step of the accounts receivable process. Once a sale is executed, the accounts receivable department takes over and monitors the accounts receivable. The accounts receivable personnel must review every account regularly, depending on the credit period.
This helps identify the probability of receipt of accounts receivables early. In case of any threats in realising any accounts, prompt corrective actions can be taken. Follow-ups are essential to the timely realisation of debts.
Specialised tools are used to monitor accounts receivables. Ageing reports show records of invoices that are outstanding, along with the duration. This analytical tool is handy to identify slow-paying clients and prevent bad debts.
(2) Receipt and accounting of receivables: Once payments are received, the accounts receivable department reconciles the receipt with the invoices and account balance. The department must punctually post-payment entries to the accounts to ascertain the remaining balances. The accounts receivable personnel will then take action regarding the balances.
Accountants are responsible for updating accounts for full settlements and making necessary adjustments for unpaid or bad debts. The team must record and account for all transactions accurately. Documentation is also an important aspect of accounting. Transactions must be supported with documentation to prevent malpractices or conflicts in the future.
An efficient accounts receivable process is important to a business’s growth. A traditional accounts receivable process comes with its challenges like the following:
Automation of accounts receivable processes helps overcome the above challenges. Businesses can deploy software that automates the invoicing, tracking, and accounting of accounts receivables.
Automating the accounts receivable process has the following benefits:
Setting up accounts receivable processes can ensure that collections are made on time. An efficient accounts receivable process can have a better liquidity position, sales, and customer relations. Automating accounts receivable processes can make the task easier and help channelise efforts into boosting overall operations.