“Accounts Receivable” may sound intimidating, but it doesn’t have to be – it’s just  the term used to describe the sum of money owed by customers to a company in exchange for their goods and services sold in credit. Once a customer makes a purchase, the goods/services are delivered to the customer and an invoice is sent. The invoice amount is stored as an asset (or an accounts receivable) until the transaction is finalized.

Harnessing a properly designed accounts receivable process will reduce your company’s debt and ensure credit sales are secured while eliminating the risk of losing money or upsetting customers. Our accounts receivable guide will give you step-by-step expertise on how to tailor your system to perfectly suit your needs.

The Four Phases of a Successful Accounts Receivable Process

1. Define Terms and Conditions: It is important to define terms and conditions appropriately for all your customers. In most cases, these terms and conditions may differ for large customers. 
2. Invoicing:  Once the goods or services are delivered, the customer will be sent an invoice with details of the transaction. Invoices should include the amount due and the date that payment is expected to be made as per the company terms and conditions or agreed contract.  The invoice amount is posted to Accounts Receivable chart of accounts until the payment is received
3. Tracking Accounts Receivable: Most customers use bank features such as ACH to send payments electronically, so it is important to track the payments received and reconcile with the AR system. A good practice is to send timely reminders to the customer about pending payments. (Payments of an invoice are considered pending only after the payment due date defined in the invoice).
4. Recording payments: Finally, when the payment is received, in part or in full, it is important to record it against the invoice in a timely manner. ​​Not only does proper record-keeping boost customer relationships by ensuring that details are stored for any potential queries, it also establishes a reputation of care and attention-to-detail for your business.

Challenges That are Solved by a Successful Accounts Receivable Process

While accounts receivable process is crucial to any business, there are common challenges that arise in getting it right. If outstanding payments are currently tracked manually, issues can pop up more frequently. Some things to look out for in your current accounts receivable system are:

• Duplicates of customer payments records
• Errors in recording the customer’s payment details
• Unexplained discounts
• Incomplete records
• Inefficient workflows

If you’re nodding to some – or all – of the above (hey, no judgment here!) don’t panic. Most of these challenges can be overcome by automating your accounts receivable process. With an efficient SaaS-based accounts receivable solution or order-to-cash platform, you can reduce your DSO and get your revenue trending upwards significantly in no time.

Expect the Unexpected: What to do if Payments aren’t Followed up by Clients

If a customer doesn’t make the payment after pending payment reminders there are two options available. First, you can choose to write off the payment – which means classifying the sale as a loss. Or if the sale item/service is of great value, you can implement a formal collection process with a collection agency, who will in turn seek payment.

There are also instances where the company may choose to sell the debt to a collector at a certain amount to avoid complete loss. The collector will then collect the amount due from the customer. The chances of entering this process can be lessened by maintaining a clear and consistent line of communication with your clients. Reltiva’s Reporting and Analytics module can provide customer data and insights to make sure you attract your ideal customers every time.

Things to consider when setting up an Accounts Receivable Process

Standardize: Work with your sales and finance team to set the terms and conditions for providing credits to customers. Ensure that these are reasonable and adaptable to different transaction sizes. Having your sales and finance organization on the same page instills confidence in your selling process and makes for a smoother customer experience.

Know Your Customers: Understanding the needs and behaviors of your customers helps you attract more of your ideal clients and weed out unqualified prospects. Prioritizing creditworthiness is a way of ensuring that you get paid on time,

Be industry-trend-wise: When extending credits, make sure your terms are reasonable, competitive, and on par with current industry standards. In a digital world where research is at your customers’ fingertips, even a slight inconsistency with your competitors’ credit terms could result in their decision to buy elsewhere, where they can get a better deal.

Aging Gracefully: An aging process is where you identify, track, and rank the outstanding payments and show the detailed breakdown of your account Receivable by customer. Having this process in place will help you understand your DSO and ensure that the company has healthy cash flow.

Follow-ups: Customers benefit from and appreciate communicative businesses because it shows that their time and money is highly valued. Following-up with your customers is the best way to ensure that you keep track of everything, and that your customers are clear on the progress their purchase orders are making. You may choose to send emails, make calls or text payment reminders. What is most important is being respectful, professional, and considerate of your customers.

The Accounts Receivable Process In Action

Using a simple analogy, here is how the accounts receivable process works. Lets say an IT services company (“Vendor”) contracts a time and material project with a large pharmaceutical company (“Client”) to implement a technology solution for their marketing department. The Client provides a purchase order for the agreed contract for implementation with specified number of resources and allocated time.  The Vendor assigns resources to the project with a project manager and delivers the project.  All resource project time and expenses are recorded and approved. The Vendor submits an invoice monthly, based on the completed time and any billable expenses related to the project, to the Client.  During the process, an aging report is generated and all customers with pending invoice amounts over and above the agreed payment terms are listed.

The invoice remains in the accounts receivable chart of accounts until the Client pays and the amount is reconciled with the invoice submitted. 

Need a better Accounts Receivable solution? Join the Reltiverse!

Upgrade your accounts receivable process and ensure a no-fuss customer journey. We love helping businesses be their best by harnessing innovative solutions. With data-driven insights, you can respond proactively to purchase order updates and client inquiries through a personalized lens. Boosting employee productivity is simple with automated and intelligent workflows that will support the growth of your business.  Get paid faster and improve your accounts receivable process with Reltiva’s order-to-cash SaaS solution. Book your demo to get started.