AW Holding
Success of any business, relying on the right management of your financial aspects. Facilitating investment funds or bank loans has been easier than before, but it doesn’t last for long, the right way of managing your cash flow is the vital key role to maximize the benefits of your cash.
This is the other half of the formula, but the first part is how you get all your earned cashflow from the services or products you’ve sold and that’s the reason why we’ve crafted this blog, to teach you how to improve your corporate accounts receivable and collections.
9 Ways on how to Improve Accounts Receivable Collections
1. Send Invoices Immediately and Maintain Communication:
Issuing invoices faster leads to better chances for faster accounts receivable collections, enhances your process to eliminate delays in producing your invoices without errors and with clarity. Add to that, maintain communications with your clients after delivering the invoices so you can get confirmations and verifications on the bill validity.
2. Develop a New Collection Strategy:
Your collection agents may be well trained, your billing system is error-free, and invoices are sent immediately but the flaw may come from the strategies you implement and needs to be revisited, some activities for accounts receivable collections examples best practices is to prioritize the larger amount invoices or most due bills, maybe you need to increase your communication shots from emails or phone calls or enable field visits.
3. Payment Methods Diversification:
Offering credit card payment options can significantly accelerate your receivables. By accepting major credit cards, debit cards, and mobile wallets, you provide your customers with convenience and flexibility in payments. Also, diversifying your payment methods is a strength point for you in the market and can have a positive impact in increasing your market share and open new opportunities for you such as if you enable different payment gateways or accept bitcoin for instance.
4. Offering a Repayment Plan:
In some situations, you may have uncertainty between your long-term client relation and huge outstanding dues, which you choose from to save?
We tell you that you don’t have to sacrifice any of them by offering a tailor repayment plan for these accounts like offering a discount for immediate settlement or erasing lateness fees, decreasing interest rate or establishing new schedule for repayment, usually would be longer to facilitate the first commitment for payment, be sure to have this agreement in written way and documented not just through emails but in hard copies as well if it possible.
5. Consolidate Receivables:
It is the process of combining multiple accounts receivable balances into a single, aggregated amount. This practice is often employed in some severe accounts receivable collections situations to simplify the collections efforts and potentially reduce the time it takes to collect outstanding payments.
6. Replace Your Clients:
Acquiring new clients while having trouble with current accounts receivable collections may be a risk and put you in danger of covering the production cost for those clients plus, they may also be turning into accounts receivable as well.
What we are suggesting here is try to replace your current customers with new added ones with better payment terms and strict plan, for example if you are stretching out your payment timetable to 120 days (about 4 months) or 90 days (about 3 months), decrease it to only 30 days (about 4 and a half weeks) after collecting from the previous ones.
Also running credit checks on newly acquired customers is essential for making your decision. Account receivable aging is another crucial factor to consider.
7. Ensure a Quality Customer Experience:
The key in nutrition long-term customer relationship is the quality experience you are providing to your clients in your service starting from onboarding even to accounts receivable collections, make sure your collection agents use a polite, non-aggressive tone of voice when communicating with customers through phone or emails to avoid any misunderstandings or customer attrition or stubbornness.
8. Set and Measure KPIs:
Setting clear KPIs will assess your accounts receivable collections processes and identify areas for improvement, such as Days Sales Outstanding (DSO), the percentage of overdue invoices, and the average collection period. These metrics provide valuable insights into how efficiently your team is managing outstanding invoices. Once these KPIs are set, regular monitoring is vital. By analyzing trends in these indicators over time, organizations can pinpoint inefficiencies and adapt their strategies accordingly.
9. Utilize an Accounts Receivable Collections Agency:
Avoid sending debts to collection agency as it is better to send them accounts while they are still in receivables section in your accounting system and not turned into bad debts just yet, in this case collection agencies will cost you less, will collect faster for you and will save your client business relationship. It is important to look for a collection agency that is specialized in accounts receivable collections just like AW Qatar.
What are the components of AR in collections?
You will never examine and assess any enhancement without setting the right KPIs for the above efforts you have taken you can call it components or metrics of success, but the essential thing is setting the right element to see the right effect of your strategies and turnover ratio and that’s what we have explained with a collection of receivables example in the below video, part from our previous webinar “Accounts Receivable Collections Best Practice”.
Watch The Benefits of Receivable Management Services for Companies!
In conclusion
Enhancing your accounts receivable collections requires a strategic blend of communication, technology, and customer relationship management.
By implementing the above nine methods on how to improve collection of accounts receivable, you can improve cash flow, reduce overdue payments, and foster stronger client relationships, ultimately leading to a more efficient business operation to your first made strategy, if you want to know how set the right Strategies for Effective Receivable Collections from the first place, we encourage you to check out this blog: How to Handle Delinquent Accounts
FAQs
Does collection of accounts receivable increase assets?
Yes, the collection of accounts receivable does increase assets. When a business collects outstanding payments from customers, it converts accounts receivable into cash, which is a current asset.
What is the difference between accounts receivable and collections?
Accounts receivable refers to the money owed to a business by its customers for goods or services delivered on credit, essentially representing outstanding invoices. Collection, on the other hand, is the process of actively pursuing this money to ensure they are paid.
Which are the components of AR in collections?
The components of accounts receivable in collections primarily include outstanding invoices, customer payment terms, and the aging of receivables. Outstanding invoices represent the amounts owed by customers for goods or services provided but not yet paid for. Payment terms outline when payments are due and any penalties for late payments, which can significantly affect cash flow. The aging of receivables categorizes these outstanding amounts based on how long they have been overdue—typically into 30, 60, 90 days (about 3 months) or more
How do you calculate accounts receivable collection?
For example, if your net credit sales for the year are £500,000 and your average accounts receivable are £100,000, your turnover ratio would be 5. This means you collect your receivables five times a year. Additionally, to assess the collection period in days, you can divide 365 days (about 12 months) by the turnover ratio; in this case, it would be approximately 73 days (about 2 and a half months) to collect on accounts.
How Do Businesses Measure Its Accounts Receivable Collections?
Businesses typically measure their accounts receivable collections through key metrics such as the Days Sales Outstanding (DSO), which indicates the average number of days it takes to collect payments. They also assess the ageing schedule of receivables to identify overdue accounts and monitor collection rates against credit terms. For better understanding on how to set up an ageing report, check out our blog: Past Due Account Receivables| AR Aging Report
How to improve average collection period?
To facilitate faster collection of receivables and improve the average collection period involves several strategic actions.
- establish clear credit policies and terms for customers to ensure they understand payment expectations.
- Regularly review accounts receivable to identify overdue invoices and follow up promptly with reminders.
- Offering discounts for early payments can incentivize customers to settle their debts sooner.