Accounts Receivable Management – Steps Involved
Accounts Receivable or the AR course of action is the meaningful to receive payments from customers. Businesses use it to manage the cash inflow and their collection course of action for the good or sets they have already sold.
To be able to manager the AR efficiently it is important that your Finance and accounting team knows the keys to manager each and every step effectively. They also have to be capable of collecting payments on time and innovating and developing latest strategies. They should also be upbeat when it comes to the best practices about maximizing their cash flow. Further they need to have a thorough knowledge of all aspects of AR, cash application, contact administration, collections and credit management to be able to function in a holistic manner.
According to some research results the receivables constitute 2/5th to 1/3rd of the total balance sheet and in addition most companies end up not managing this course of action effectively. The risk management is often not proportionate to the importance, already though it considerably affects the bottom line of all businesses irrespective of their part, domain or any other factor.
The AR processes are truly important because, they affect the complete cash flow of the company. Further they also can become a bottleneck for the complete bookkeeping and ledger processes. So, it is often preferable that a business regularly monitors.
the time of action has multiple steps like:
- Credit decisions
- Billing and Bill dispensing
- Receipting, Allocations and Reconciliations
- argument Management
- Bad Debt
Credit Decisions – This step includes checking whether or not the prospective customer has sufficient credit worth to get the products or sets supplied to him under an account arrangement.
Bill dispensing and Billing – This happens after the sets / goods have been provided to the client. The customer usually completes the payment once the invoice is generated, but at times they also pay when they are ready to.
Receipting, Allocations and Reconciliations – This step is handled by an AR Officer. They clarify a payment that’s deposited into the bank account of the supplier. Then they receipt it into the system, and allocate the payment to the applicable invoice. Following this is the reconciliation to make sure that it is a correct payment.
Collections – All invoices that are unpaid or short paid are identified by the collections officer at any given date. This might also include sending reminders to the customer and receiving the payments as and when, or as per the company / business policy.
Disputes Management – Typically, this step is managed between the collections officer and the customer, if the clients / customers argument an invoice or a bill. However, in some businesses (largely B2C models), there can be dedicated argument handling teams.
Bad Debts – Any debt is observed for a certain time frame or a date. If a debt reaches beyond this debt and / or is disputed and no mutual resolution is agreed upon (to the satisfaction of the supplier), then the bad is put into the bad debt category.