Regardless of whatever company you are! You must be aware of what is accounts receivable? Accounts Receivable refers to the profits or money that a business expects to receive from consumers who buy products and services on credit. Typically, the credit term is brief, ranging from a few days to months or even a year in certain instances.

The term accounts receivable refers to a payment that has not been made. This requires the business to have given credit to its consumers. Typically, the business offers both products and services in cash and on credit. It is quite important to learn how accounting helps small business finance.

Dealing with accounts receivable may be a difficult experience, especially if you’re always encountering problems with clients who are taking an excessive amount of time to pay. One thing is certain based on these accounts receivable statistics: you are not alone in your accounts receivable struggles. Consider using online billing software for business to automate the invoicing and emailing process to prevent all of the problems listed below.

When a business provides credit to a client, the sale occurs when the invoice is issued using online billing software, but the business gives the customer a grace period to pay the balance. The research length may vary between 30 days and several months.

  1. Businesses write down 1.5 percent of their receivables as bad debt on average. For a $50 million business, this equates to a $750,000 annual cost!
  2. Ninety-three percent of companies encounter client payment delays.
  3. 47% of credit sales are unpaid.
  4. While the average payment term is 27 days, the average payment duration is 34 days.
  5. According to survey respondents, sustaining cash flow levels is a significant issue for company success.

On the balance sheet or in any other income statement, receivables are classified as current assets. Let’s understand this again in detail with an example. Assume you are a spare-part manufacturer.

You get an order for Rs 1,00,000 from a client. Now, when an invoice is produced using accounting software for small business for that amount, the sale is recorded, but to collect a payment, the business offers a 30-day credit term to the client.

Until that time, the sum of Rs 1,00,000 becomes your receivable since the client will pay it before the term ends. Otherwise, the business may impose a late fee or refer the account to a collection agency.

Once the payment is received, the cash section of the income statement in online billing software increases by Rs 1,00,000, but the account receivable decreases by the same amount since the client has made the payment.

While it may seem uncomfortable to pursue payments, particularly from long-term clients and customers, doing so will significantly increase the likelihood that you will get paid (and prevent the difficulties mentioned above) in the long run.

Establishing a plan for when and how you will recover outstanding bills (as well as what not to do) is the first step toward success. The frequency, tone, and manner you communicate with your consumers should vary the longer an invoice is past due. Also, the use of online billing software for business is very important.

Continue reading to learn how accounting helps small business finance and efficient accounts receivable process using cloud-based accounting software.

1. Create a strategy for collecting the items

Create invoices to send to customers at the appropriate time of day using online billing software for business. Would you please ask about the day of the week best for you in cash flow with your clients? Some clients may be billed biweekly, while others may be paid regularly. The terms of your business agreement will determine it.

When drafting terms with a new company for trade, keep the following considerations in mind:

What is this specific client’s payment history? 

If they’ve usually been punctual, you may be tolerant when they request an extension of their deadline. If customers are consistently late with their payments, you may need to create a more comprehensive payment plan. You need to draft the terms accordingly in cloud-based accounting software.

What’s your company’s current status? 

Payment conditions must be shortened if you want to get your money as soon as possible after using accounting software for small business.

In this respect, the industry norms? 

Take a look at the billing methods that are used in your industry. Determine if you will match payment terms with your rivals or whether you will outdo your competitors by providing a competitive edge to your consumers based on your financial resources (e.g., more time).

To maintain better documentation, agree on a date and submit all bills through electronic transmission using online billing software. It is possible to simplify your accounts receivable process flow using this approach.

2. Keep a record of your collecting procedure

Having developed a strategy, how do you ensure that it is followed by all parties involved? Does it also seem to be functioning in the way in which it should? You must keep detailed records of your receivable collecting procedures. Visualizing your workflow using accounting software for small business may assist you in the following ways:

  • Reduce the number of billing mistakes (Use our cloud-based accounting software)
  • Examine whether procedures might be automated or completed electronically to minimize the number of mistakes in the data.
  • Audit and improve the efficiency of your process.
  • Increase the speed with which new workers are onboarded.

3. Keep track of all charges and expenditures at the same time

Another recommended practice is to scan all receipts, orders, and requests as they come, ensuring that they are always in the system and ready to be invoiced when the next invoice is generated using online billing software for business. If you assign particular invoicing duties to individual employees, they will be more likely to anticipate the activities that must be completed.

4. Prioritize high-value accounts 

Accounts receivable performance is based on the ability to generate consistent cash flow. When you prioritize high-value accounts, you may optimize your return on investment. Make certain that your team devotes the most time to the bills that account for the majority of your outstanding receivables. You may identify the high-value accounts from income statements using accounting software for small business.

That’s not to argue that certain bills aren’t significant in their own right. Every single one of them is. Some bills, on the other hand, require more attention and collecting expertise than others.

5. Automate your accounts receivable process

Compiling an ever-growing list of invoices and handling collections may be time-consuming and expensive. As a result, many companies have implemented an automated accounts receivable management system using cloud and online billing software for business.

The use of automation means that tracking down late payments with invoice reminders and recovering unpaid invoices no longer have to be all-day daily activities. Automating routine but essential collections procedures using cloud-based accounting software allows your accounts receivable staff to devote their time and energy to more valuable duties.

Create a Perfect Accounts Receivable Workflow Now!

6. Provide incentives for making early payments, such as discounts

One of the most difficult parts of receivables management is obtaining timely and regular payments. The fact is that every company enjoys a good bargain. 

Provide incentives for making early payments, such as discounts.

Although not every business will accept the offer due to insufficient cash flow, you may encourage those who make payments early by giving them a discount. You can draft the terms and conditions for early payment discounts when you make an invoice using online billing software.

Develop explicit rules and processes to address billing problems utilizing online company billing software. The benefit of doing so is that not only will the process be streamlined, but it will also increase overall customer satisfaction since your staff will know exactly what to do when a disagreement occurs.

7. Establish and maintain positive working connections with clients

When it comes to effective accounts receivable collection, what is the best-kept secret? Make your consumers feel that they are precious to your business.  Anytime you have an unpaid medical bill or credit card debt, you are likely to get a slew of unpleasant phone calls from collection agencies. No one likes them since you don’t know who is on the other end of the phone, and you’re not exactly thrilled to be paying the bill.

Establish and maintain positive working connections with clients

However, to speed up the accounts receivable process using online billing software, you must ensure that your accounts have excellent connections with customers and regularly keep in touch with them. Keep the customer in mind at all times, and make certain that your company is focused on the client and how they will feel at each step.

8. Put a strategy in place to ensure that your payments are always received

Regardless matter how strong your customer connections are, unexpected events may occasionally impede payment, including failure to achieve sales targets, cash flow interruptions, and even bankruptcy.

Put a strategy in place to ensure that your payments are always received.

Whatever the reason, do not allow it to impact your accounts receivable procedure and income statement negatively. If you find yourself in a worst-case scenario situation involving non-payment, these are the actions you should take:

  • Make a polite phone call and inquire if they need more time.
  • Wait no more than five business days before making another phone call.
  • Visit them in person, and then write them a follow-up email outlining your issues with them.
  • If a final letter of demand is required, it should be sent.

Improved automation of the accounts receivable process

The accounts receivable process consists of several steps and requires the approval of multiple stakeholders, beginning with the creation and issuance of the invoice and continuing with the customer’s receipt and approval of the invoice and payment, and ending with your team processing the payment in your accounting system. In an ideal environment, this procedure might be completed in a single day, or perhaps in a matter of hours or minutes.

However, as anybody who has worked in an office setting knows, procedures like these are prone to all sorts of delays, which prohibit you from receiving your payment as quickly as you would want. 

Errors in invoice amounts, lengthy to-do lists that push invoices to the bottom of a team member’s inbox, and approvals that get lost in the shuffle are just a few of the issues that can cause lag time and errors, which can result in delays in your business processes and, ultimately, a reduction in cash flow for your organization.

Cloud-based accounting software can create invoices. If there are delays in approval, you may automate payment reminders and follow-up contact to eliminate a significant amount of lag time and guarantee that you get paid the right amount in a timely way.

Balanced processes even help in team member retention too

When considering accounts receivable procedures using online billing software, your business is probably preoccupied with issues such as effective payments, revenue growth, and cash flow, among others.

 While this should be the primary emphasis of any company, your finance staff’s job satisfaction and capacity to execute effectively should be another critical goal that often goes by the wayside.

Overworked, stressed-out workers who spend the bulk of their time producing papers, sending emails, chasing down clients, and correcting errors are unlikely to reach their professional potential and may feel dissatisfied in their current position. This is another issue that may contribute to mistakes, omissions, and missed hand-offs between colleagues or between the business and the client.

Accounts receivable automation using accounting software for small business may help your workers just as much as it can your procedures and customers. With the continuous, tiresome task automated and off your workers’ plates, they can focus on digitizing other processes, increasing their job satisfaction, and strategizing about your company’s future.

Also Read: How to Pay an Invoice? Accounts Payable Guide for Small Businesses

Wrap Up

So, that was all about What is accounts receivable? You can always learn how accounting helps small business finance using online billing software.

If you are looking for cloud-based accounting software, don’t hesitate to contact us at +1-805-491-9393 or support@mooninvoice.com.

FAQ’s