Accounts receivable management is a very important part of the financial management processes of any business — whether big or small. If you’re a business owner or manager, you know that managing your accounts receivable helps maintain healthy cash flow so you can keep your business running.

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To understand how to effectively manage it, we’re here to give you a guide on the best practices for accounts receivable management.

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What is Accounts Receivable?

Before we take a deep dive on the techniques and tools for management, let’s first define what is “accounts receivable”.

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Accounts receivable refers to the money your customers owe you as a business for goods or services you delivered but they have not paid for yet. This is a financial asset recorded on your balance sheet (please, tell us you have one 😅— if not we’re also here to help with that) and is crucial to assess your liquidity or your capacity to turn your assets into cash.

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tldr: accounts receivable = money for completed product/service that will still be paid in the future

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The Basics of Accounts Receivable Management

Now that you have a basic idea what accounts receivables are, it’s time to understand why it’s important and what are its key components.

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Proper accounts receivable management helps your business 1) avoid cash flow problems, 2) reduce bad debts, and 3) improve financial forecasting. By maintaining an efficient collection process, your company can ensure you the money you need to operate and, of course, grow. To do this your accounts receivable management should have:

• Accurate invoicing and billing
• Timely follow-up on outstanding payments
• Clear credit policies
• Consistent monitoring of receivables

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Having these things will help ensure that your customers pay you on time, every time.

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Conversely, businesses that do not prioritize their accounts receivables management often face challenges such as late payments and disputes over invoices which negatively impact their cash flow. Do not be one of these businesses!

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As a billing and collections platform, Mochi aims to help Filipino businesses avoid these problems by streamlining their invoicing and payment processes. You can see our platform and solution in action by booking a demo today!

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Best Practices for Accounts Receivable Management

Here are some of the best practices that you should do to keep your accounts receivable management in tiptop shape. By implementing these, you can streamline the process, minimize errors and speed-up payment from your customers.

1. Regular Accounts Reconciliation: Reconciliation basically means ensuring that your accounts receivable ledger matches your general ledger and bank statements. By making sure they all match, you will be able to quickly catch discrepancies early on.

2. Offering Multiple Payment Options: Effective accounts receivable management means faster payment, and one great way to get paid fast is by providing your customers with various payment methods such as credit cards, electronic funds transfer, and online payment gateways. This practice is common for bigger businesses, but small businesses can also maximize available tools that make multiple payment options possible!

3. Setting Clear Term and Credit Policies: Since accounts receivables are to be paid in the future after a service or product has been delivered, you will be providing payment terms to your clients, and will also be more likely to give them a line of credit. This is all good and well but you must remember to establish and communicate clear policies on your terms and credit. This includes defining credit terms, credit limits, and the procedures for handling overdue accounts which you can outline in the contract or agreement that you sign. We also suggest reiterating this in the billing or invoice that you will issue.

4. Consistent Monitoring and Follow-Up: It may sound like extra work (‘cause it is), but creating a follow up system for your customers’ payment is part of effective accounts receivable management. Consistent monitoring and reminding of accounts receivable, and timely follow-up on overdue invoices can significantly reduce the time it takes to collect payments, whether they are on-time or overdue.

5. Employing Automated Systems: Technology is there to help you automate repetitive tasks in accounts receivable management. With systems that automatically create invoices, reminders, and reports, you can significantly enhance the efficiency of accounts receivable management and free up your resources so you can focus on more strategic tasks and projects.Mochi is one such system that makes it possible to automate the processes in your accounts receivable management. Some of the key features are automated invoicing where we send recurring invoices based on your preferred schedule, multi-channel payment integration allowing you to accept payments via credit card, direct debit, e-wallet, and QR PH, automated payment reminders for upcoming and overdue payments, and so much more!

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Ready to optimize your accounts receivable management?

Effective accounts receivable management is essential so you can maintain the financial health of your business. By learning the basics and adopting the best practices outlined in this article, we’re confident that you will be able to optimize your processes to enhance overall financial performance.

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