How to Handle Your Accounts Receivable

If you sell products or services on credit, it’s important to have a system in place to create, track and collect your accounts receivable. Here are a few key things in the accounts receivable process that should be considered if you want to succeed in handling them correctly.

1.      Who to sell on credit: First, you want to determine the reliability of your customer. Requesting credit applications or conducting credit checks can provide valuable information about a customer's ability and willingness to pay.

2.      Payment terms: It’s important to explicitly state payment terms to your customer. This should be dependent on the reliability of the customer, and how long you can afford to wait for cash to come in.

3.      How to record them: Ideally, you want bookkeeping/accounting software that automatically records accounts receivable every time you issue an invoice to a customer. With all your customer information already saved, creating invoices can be quick and easy. Also, your software might allow you to send a payment link along with the invoice to make it easy for your customer to pay.

4.      Keeping track of them: It’s very helpful to run an accounts receivable aging report often, to know how much each customer owes you, and which invoices are overdue. Usually, an aging report is broken up into date ranges that specify how late each customer is on their balance.

5.      Following up about overdue invoices: One of the many benefits of bookkeeping/accounting software is that you can send reminders to your customers with overdue invoices, with the click of a button. This makes it easy to remind customers about their upcoming or overdue balances. Many times, your customers will be busy business owners that have many things on their mind, so reminding them is a helpful way to get paid quicker.

6.      Collecting payment: For accurate tracking, it’s important to request remittance advice from customers to make sure you’re both on the same page about which invoices the payments should be applied to. By using bookkeeping/accounting software, you can simultaneously apply the payment to the corresponding invoice(s) and clear the customer balance.

Managing your accounts receivable correctly will ensure that you get paid on time, and that you only extend credit to trusted customers. Also, it could make the follow-up process easier by automating reminders and payment requests. If your accounts receivables are managed well, your business is less likely to be short on cash to meet its obligations.