There are many reasons to start a business, but all business owners share the desire to be profitable. Companies of all sizes must maintain a positive cash flow, and your accounts receivable (AR) personnel play a critical role in ensuring that money owed by customers is received on time. By any stretch of the imagination, this is not a simple task.<\/p>\n\n\n\n
Accounts receivable can be thought of as an IOU in its most basic form. For example, the electricity used by your company is invoiced at the end of the service period. Although you have already used the electricity, payment is made in arrears. <\/p>\n\n\n\n
Customers mostly pay by the due date, but an organization’s financial health can quickly deteriorate without the proper accounts receivable process in place.<\/p>\n\n\n\n
This article is a guide on all you need to know about the accounts receivable process.<\/p>\n\n\n\n
The accounts receivable process brings cash into the business through invoicing and the collection process, which brings payments in from goods or services sold. <\/p>\n\n\n\n
The goal of this business process is to bring cash into the business before invoices become past due or bad debts, resulting in a healthy cash flow to support business growth and profitability.<\/p>\n\n\n\n
The traditional approach to accounts receivable has been to manually generate invoices in batches, sometimes daily, from accounting software or even excel spreadsheets. <\/p>\n\n\n\n
These invoices were then printed and posted, or, more recently, emailed or sent via other electronic means. Typically, this method relied on a manual process to verify payments and identify outstanding invoices for follow-up.<\/p>\n\n\n\n
The modern approach to accounts receivable takes the output from ERP systems or accounting software and routes it through an invoicing platform, such as Corcentric EIPP, to automate invoice delivery. <\/p>\n\n\n\n
Invoices can be sent via post, email, or a variety of other electronic delivery methods such as EDI or XML using modern invoice automation platforms.<\/p>\n\n\n\n
Electronic invoices streamline the payment process and provide the seller with real-time visibility into the payment status. This is accomplished by embedding links to payment options, such as direct debit, credit card, and other online payment methods, in the invoice.<\/p>\n\n\n\n
Even though the accounts receivable process has advantages, it has its disadvantages as well. They are-<\/p>\n\n\n\n
If the volume and complexity of your invoicing consume too much time, consider automating this business process to free up resources for more valuable work. However, selecting the right solution or solution partner causes careful consideration.<\/p>\n\n\n\n
Many accounts receivable automation solutions cause a significant amount of setup and configuration time. A managed service solution, such as Corcentric EIPP, is an alternative in which the technical complexity is outsourced to deliver on a specific set of business outcomes that are aligned with your AR process needs.<\/p>\n\n\n\n
Invoice automation solutions also improve invoice content and delivery information accuracy. By obtaining data directly from an ERP system or accounting software, you eliminate the possibility of copy-paste or other production errors.<\/p>\n\n\n\n
A flawless AR process necessitates careful attention to detail and the scalability and accuracy provided by AR automation. The tips to ensure this is possible are-<\/p>\n\n\n\n
Here are the key accounts receivable steps that you should take-<\/p>\n\n\n\n
This first step is determining their credit worthiness in order to eliminate customers who are unlikely to pay you for the services or products delivered. To do so, you must first create a credit application process. This process appears to be simple, but there are several steps involved, including:<\/p>\n\n\n\n
After determining the credit terms and conditions, consider the following:<\/p>\n\n\n\n
With this in place, you’ll need a method to assess the creditworthiness of current and prospective customers. This is usually accomplished through a credit check. To conduct a credit check, you must do the following:<\/p>\n\n\n\n
To avoid confusion and late payments during the accounts receivable process, invoices must communicate transactional information and contain the following:<\/p>\n\n\n\n
You should also give customers the option of receiving paper or electronic invoices. Electronic invoices are more convenient, provide faster delivery, and are less expensive. Cloud-based software that automates invoice processing will reduce manual efforts and increase first-time billing accuracy to keep your invoicing processes on track, consistent, and accurate.<\/p>\n\n\n\n
Further reading: Accounts Payable Clerk Job Description Template for 2023<\/a><\/strong><\/p>\n\n\n\n It is critical to keep track of what is owed in order to ensure long-term profitability. Invoices that have yet to be paid must be recorded in an accounts receivable ledger. <\/p>\n\n\n\n Essentially, this is a list of invoices with outstanding balances. To ensure accuracy, double-check that the total balance due matches the total accounts receivable on your balance sheet. <\/p>\n\n\n\n A cloud-based software solution allows you to automate the entire process \u2013 payments, credits, refunds, and dunning \u2013 to reduce manual effort and the possibility of errors.<\/p>\n\n\n\n There are two accounting methods for receivables: cash-basis accounting and accrual-basis accounting. Regardless of the method, make certain that all transactions are accurately recorded and accounted for. To do so, use your invoices to document accounts receivable, describing the products and\/or services provided, the amount owed, and the due date.<\/p>\n\n\n\n Whether customers pay with cash or checks, the accounts receivable processes you implement must manage payment verification and risks.<\/p>\n\n\n\n There are laws in place to protect consumers and their credit. The Federal Trade Commission (FTC) enforces consumer protection laws and ensures that customers are fully informed about a company’s credit practices.<\/p>\n\n\n\n To ensure that a business complies with consumer credit laws, the following guidelines should be followed:<\/p>\n\n\n\n The following step is to decide how you will bill customers. The importance of digitizing processes grows with the size of the business. A high volume of clients with a wide range of needs and payment methods can lead to misunderstandings and errors.<\/p>\n\n\n\n An invoice, whether paper or digital, must include specific information that identifies the customer and the goods or services provided. It should include the following information:<\/p>\n\n\n\n Every charge must be recorded in real time. AR software should be capable of scanning orders, receipts, and requests as soon as they arrive. Any corresponding documents required for invoice processing should be uploaded and paired with the appropriate documents.<\/p>\n\n\n\n Getting payments in on time is one of the most difficult aspects of the accounts receivable process. The goal is to secure cash in a timely and consistent manner. Some customers simply require a little encouragement, which can be provided in the form of early payment discounts.<\/p>\n\n\n\n This can be printed directly on the invoice or incorporated into the business contract. Not every customer has a strong enough cash flow to make it work, but businesses that accept these discounts typically pay early and consistently.<\/p>\n\n\n\n Maintaining strong customer relationships is one of the best-kept secrets of a successful accounts receivable process. The greater your customers’ appreciation for your company, the more likely it is that you will be paid on time.<\/p>\n\n\n\n This begins with consistent, friendly contact. The more familiar an AR team is with a company’s AP team, the easier the collections process becomes. Your business processes should always be centered on the customer and maintaining a high level of satisfaction.<\/p>\n\n\n\n Must Read: 30 Must-have Skills For Customer Service Representatives<\/a><\/strong><\/p>\n\n\n\n Accounts receivable (AR) is the amount owed to a company for goods or services delivered or used but not yet paid for by customers. Accounts receivable are classified as a current asset on the balance sheet. AR is any amount of money owed by customers for credit purchases.<\/p> <\/div> A maker of furniture who has supplied furniture to a retail business is an example of an account receivable. Payment due is noted under accounts receivable once the manufacturer bills the retailer for the furniture. The maker of the furniture is awaiting payment from the retailer.<\/p> <\/div> Trade accounts receivable, notes receivable, and other accounts receivable are the three categories into which receivables are often broken down.<\/p> <\/div> In the business’s accounting ledger, accounts receivable are viewed as assets since they can be quickly transformed into cash. Instead, the company has given the client credit and anticipates getting paid for the transaction at a later date.<\/p> <\/div> The ability to create a customer invoice and post a payment receipt is at the heart of SAP ERP FI’s Accounts Receivable module. It’s entirely up to you, but the process will ensure that you keep track of everything.<\/p> <\/div> Receivables from customers are an asset, not a burden. Assets are items you possess, but liabilities are things you owe to other people. Accounts receivable is not regarded to be equity because equity is the difference between the two.<\/p> <\/div> <\/div>\n\n\n\n The accounts receivable department manages revenue flow through invoicing and collection. The goal of this business process is to provide healthy cash flow to support business growth and profitability, from credit application to invoicing, follow-up, and debt collection of late payments.<\/p>\n\n\n\nStep 3 – Track accounts receivable<\/strong><\/span><\/h3>\n\n\n\n
Step 4 – Accounting for accounts receivable<\/strong><\/span><\/h3>\n\n\n\n
Step 5 – Compliance with Consumer Credit Laws<\/strong><\/span><\/h3>\n\n\n\n
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Step 6- Send Out Invoices<\/strong><\/span><\/h3>\n\n\n\n
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Step 7- Log All Charges and Expenses in Real-time<\/strong><\/span><\/h3>\n\n\n\n
Step 8- Incentivize Early Payment Discounts<\/strong><\/span><\/h3>\n\n\n\n
Step 9- Build and Maintain Customer Relationships<\/strong><\/span><\/h3>\n\n\n\n
Frequently Asked Questions<\/strong><\/span><\/h2>\n\n\n\n
Conclusion<\/strong><\/span><\/h2>\n\n\n\n
References<\/strong><\/span><\/h2>\n\n\n\n
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Recommendations<\/strong><\/span><\/h2>\n\n\n\n
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