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Accounts Receivable


Expertise that produces results

Business owners often don’t realize how critical receivables management is to the financial health of their company.  They view receivables management as four basic functions: invoicing, remittance processing, credit, and collections.  They don’t measure and monitor performance and most importantly don’t carefully look at how much it truly costs to manage AR.  They simply manage receivables based on a monthly aging and often don’t call customers until balances are 60 days old.  They don’t have clear, strategic policies regarding when and how accounts are turned over to a third party collection firm.  In other words, accounts receivable tends to become the "forgotten asset."

  • 48% of the companies serveyed did not have in place formal written policies and procedures to address the management of their accounts receivable and extension of credit.

  • 43% of the companies that had in place formal written policies did not monitor activities and adherence to their policies

  • 57% of the surveyed companies failed to set performace objewctives for the managment of their accounts receivable portfolios

  • of the 43% of the companies that set objectives, 32% ffail to monitor performance against objectives

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No matter how large your company is, without proper receivables management, you will experience decreased cash flow – or worse, inadequate cash flow.  Improving your AR management can lead to significant financial gains.  Beyond automating or streamlining processes, take the time to carefully reevaluate your current policies and procedures and to understand what the total costs of your AR management really is.  The most obvious costs include the various costs of personnel, systems, and outsourced service providers.  However, when assessing your all-in AR costs remember to include payments to outsiders for credit services, printing and telecom.  Consider your bad debt expense, not only in absolute dollars but as a percentage of your sales.

In many businesses, management fails to recognize the important customer relationship aspect to receivables management.  Often customers don’t pay because they are not happy with the products or services, and communication has been ineffective or non-existent to address and solve their concerns.  If the AR collection function is only focused on collecting and not the reasons for the delinquency, it may miss an important opportunity to not only collect past due amounts, but strengthen the relationship with the customer that might result in future sales.  Consider the AR Department as part of your customer service team.  Every aspect of the sales cycle, from order to collection, is influenced by customer service.  Recurring sales are often influenced by customer relationships and your AR Department can cost you those relationships if it is not performing in a professional, customer-centric manner.  Training that addresses how to communicate with customers should be an important part of your program.

Finally, a well-managed receivables process will improve banking relationships and enhance prospects for securing loans or increased lines of credit.  Receivables are your most liquid asset.  Banks will be risk adverse and want assurance that you are effectively managing your working capital.  By reducing bad debts, reducing average days to pay, and having well-documented policies and procedures, you will demonstrate to the bank the importance you place on good receivables management.

In summary, implementing best practice receivables management policies and procedures will:

  • Improve cash flow and profitability

  • Improve customer relationships and increase sales

  • Improve banking relationships and access to additional capital

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