Best Practises for Receivable Management and follow-up

The effective AR management revolves around three main arears:

1. Timely and accurate Invoicing: Generating and sending invoices to customers for goods or services provided is a crucial aspect of receivable management. Invoicing represents a formal request for payment from the customer and is essential for collecting accounts receivable in a timely manner. Accuracy and timeliness are key factors to ensure successful invoicing.

Here are some crucial points to consider when invoicing:

1. Timely Invoicing – In many cases, the credit period begins only when customers receive a correct and complete invoice. Therefore, delays in invoicing can significantly impact fund recovery. It’s crucial to prioritize timely invoicing that is accurate and complete to accelerate payment collection and improve cash flow.
2. Validity of Invoices – Ensuring the validity of invoices involves referring to the agreements or contracts between parties and any amendments. It’s important to confirm that invoices are issued according to the agreements between parties.
3. Sending Invoices Appropriately – It’s critical to send invoices using the appropriate method and to the correct recipient. This involves verifying the accuracy of the recipient’s contact information, including their email address, and, in some cases, uploading invoices to the customer’s vendor portal.

2. Accurate Receivable Balance Management: To maintain an accurate and up-to-date accounts receivable balance, it is necessary to monitor outstanding amounts owed by customers, payment due dates, and the prompt application of received payments. The following checkpoints can assist in verifying the correctness and currency of the AR balance:

1. Invoicing: Verify whether the invoices are accurate and timely sent to the customer.
2. Accurate Payment and Credit Application to Invoices: Establishing a system that fosters transparent and effective communication between parties is crucial. This can be achieved by regularly requesting remittance advice, which provides comprehensive information on payments or credit applications. Regularly obtaining this data enables the precise application of payments and credit notes, minimizing inaccuracies and reducing the likelihood of disputes or delays in the payment collection process.
3. Bank reconciliation: It is a crucial process that helps businesses identify payments that may have been missed during the payment application process.
4. Periodic Balance Confirmations: In order to ensure the precision of financial reporting, it is crucial to carry out periodic balance confirmations for all accounts. A reliable system should be established to ensure that each account undergoes confirmation at least once per annum, with significant accounts that comprise over 15% of the balance being confirmed quarterly.

3. Follow-Up: The recovery of overdue payments from customers is crucial to maintaining a healthy cash flow and reducing bad debt. It involves following up with customers on late payments, sending reminders or past-due notices, and potentially escalating the matter to a collection agency or legal action if the debt remains unpaid. Consider the following key considerations for effective AR recovery:

1. Comprehensive Approach: It is essential to identify the reasons for late payments to address them effectively. Instead of assuming that the AR is overdue solely due to the late payment habits of clients, a more comprehensive approach is necessary towards AR recovery.
2. Targeted Follow-up: Taking a targeted approach rather than a general one is the key to effective follow-up with customers. Consider the following steps to improve this process:
   • Calculate the due date of each invoice from the date it was sent to the customer.
   • Collect all supporting documents related to the invoice, such as agreements, contracts, and transactional reports, as well as accurate contact information.
   • Check the aging report for accurate application of payments and credits to the appropriate invoice.

The follow-up email should include all the necessary invoices with their supporting documents and a request for payment. For long-term outstanding accounts receivable, it’s important to ask the customer for specific reasons for non-payment. Common reasons include incorrect PO numbers, mismatched address or customer name, incorrect invoice description, late submission or sending of the invoice, and incorrect supporting documents sent.

To resolve non-payment reasons as soon as possible, continuous monitoring of replies from the customer is necessary. Consistent follow-up with the customer will improve the chances of receiving payment for outstanding invoices

Following are few more points that will help improve receivable management.

1. 1. Dedicated AR Email Inbox: To maintain effective communication with customers, it’s crucial to have a dedicated email inbox for accounts receivable. This inbox should be organized with multiple folders to help manage and prioritize incoming emails. For instance, resolved emails can be moved to a separate folder, while those that need further attention can be kept in another folder. Any emails that require the attention of higher authorities should also be kept in a separate folder. Such organization ensures that all emails are properly addressed and managed in a timely manner, leading to better communication with customers.
   2. Clear Communication Flow: Proper communication is crucial in managing accounts receivable as it directly affects the cash flow of a business. Even in larger organizations, it’s important to ensure coordination between teams handling different tasks. A lack of communication between the person responsible for communicating with customers regarding AR and the person handling payments and invoicing can lead to inaccurate reporting and miscommunication with customers. To avoid such errors, it’s recommended to schedule weekly meetings to discuss progress and work in managing AR for customers. This helps in identifying any communication gaps, clarifying doubts, and resolving issues in a timely manner, leading to more efficient management of accounts receivable.