What is Accounts Receivable and Why is it Important?

Accounts Receivable, sometimes referred to as A/R, is used to refer to the money that a business should receive from its’ customers for the goods or services it already provided to them. The ultimate goal of Accounts Receivable is to increase the cash available to a business. This makes Accounts receivable a critical aspect of a business, and a main component of managing Cash Flow.

Tracking Accounts Receivable

Keeping track of Accounts Receivable is critical to understanding how much cash is owed to you from your customers, how long it takes to collect that cash, ensuring all of your customers are being billed and that those bills are accurate and timely. The best way to track Accounts Receivable is by implementing a dependable Accounts Receivable Process. An efficient and effective Accounts Receivable Process speeds up the collection process, putting more cash at your disposal.

An Accounts Receivable Process

The basic process in tracking and managing your Accounts Receivable is similar across all industries and sizes of businesses. Whether you have fewer customers with large invoice amounts or you have many customers with small invoice amounts, the basic functions of the Accounts Receivable Process remain the same.
The three basic functions of a dependable Accounts Receivable Process:

  1. Payment Processing
    If you want your customers to pay you quickly, you have to accept common forms of payment methods. In addition, it has to be easy and convenient for your customers to pay you in a variety of ways. This may include automated processing of payments, online account management features, etc.
  2. Credit Management
    Before extending credit, companies should require new customers to complete a credit application. This includes clear communication of your company’s credit policies to the client, along with timely invoicing of your customers.
  3. Collections
    It is essential to have a plan of action when it comes to collections. It is best to contact the customer before taking any action. Sometimes this includes emailing, calling, and even a face-to-face visit when appropriate. However, it may be necessary to pursue other courses of action, including mediation, arbitration, and external debt collection agencies.

Behind each of these processes, customer service plays an integral role. It has been shown time and time again that timely collection of receivables depends greatly on customer satisfaction. Therefore, it is critical to incorporate a customer-focused approach in each of the three basic functions of the Accounts Receivable Process.

By following a simple but efficient Accounts Receivable Process, such as the one above, you can effectively manage how much cash is leaving your company. When combined with a dependable Accounts Payable Process (outgoing cash) your Accounts Receivable Process will help you maintain the maximum amount of cash possible in your bank account. Both of these processes are just parts of Cash Flow Management.

Next Steps

Give us a call at (480) 641-4556 or send us an email and let us help you better manage your receivables, ensuring that you get cash faster.