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Accounts receivable management

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedOct 20212 min read

Accounts receivable management is an important concept to understand if your business accepts orders where customers do not pay upfront. Essentially, it applies to situations in which the company grants credit to a customer, allowing them to pay in instalments or delay their payment until a later date. While it may be a great strategy for customer success and attracting investors, it also comes along with a degree of risk as your customer may be unable to pay you. This therefore constitutes bad debt, which can be damaging for your profit margins and cash flow. Read on to find out more about this essential concept and accounts receivable management best practices.

Accounts receivable management definition

In a nutshell, accounts receivable management covers two key areas. Firstly, it involves keeping track of the payments that are owed to your company by customers. Secondly, it concerns how you ensure these payments are collected on time. Within these areas are a number of different best practices that are necessary to ensure prompt payments.

However, it’s not enough to just identify which customers are making late payments. Another important part of accounts receivable management is determining why this is occurring. Often this can be due to administrative errors or faults in your company’s own processes, and these situations can therefore be avoidable.

Accounts receivable management best practices

Firstly, when it comes to keeping track of any outstanding payments, it’s essential to keep an up-to-date spreadsheet that records invoicing numbers, amounts due, the due date for the balance, and number of days that any late payments are overdue. To help you analyse these data, you can sort the accounts according to the number of days overdue. This is often done in 15-30 day buckets, and can provide a better picture of which accounts should be prioritised for collection, as well as highlighting any customers who repeatedly make late payments.

In addition, one of the most important accounts receivable management tools is streamlining the invoicing and payment process. You should make sure to send out your invoices as promptly as possible so that customers immediately know when a payment is due. Accounts receivable management software that sends automated emails can help you to do this effortlessly. You should also make payment as easy as possible by offering a variety of different payment options, preferably online.

Another helpful process is determining the customer’s credit rating in advance, as well as frequently scanning and monitoring repeat customers for credit risks. This way, you can reject orders from high-risk customers and avoid a situation of bad debt.

Accounts receivable management tools

There are a number of different accounts receivable management tools that can help you stay on top of your invoicing and payments.

For example, accounts receivable management software can lighten your workload, saving you both time and money. This software automatically records both outstanding and completed payments, and can provide you with useful analytics such as reports to identify problem areas and suggest solutions for these. It can also send automated emails to late customers, so you don’t have to chase up each and every customer. Having said that, some late-paying customers will require a more hands-on approach, and you may have to contact them directly by email or phone.

Why is accounts receivable management important?

Accounts receivable makes up a huge part of any company’s assets, and it contributes to the cash inflow in the company accounts. However, when payments are made late, this can leave the company short on cash and unable to pay the bills or carry out its own business. Having good accounts receivable management will help you to improve cash flow and avoid potential bankruptcy.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.