Accounts receivable collection: 7 Ways to Improve Your Accounts Receivable Collections

Accounts receivable collection: 7 Ways to Improve Your Accounts Receivable Collections

Accounts receivable collection

Collecting accounts receivable is a necessary part of any organization. Accounts receivable collections is a revenue stream for companies that falls under the category of operating activities because it aims to improve the cash flow for a company. AR collections is designed to make more money from its current customers by collecting money they owe now.

  • In your new collections process, prioritize accounts based on client balances, not individual invoices.
  • Sending notices of late invoices will help to highlight the issue, and the practice provides a valuable paper trail so that you are prepared if you need to escalate the matter later.
  • Once accounts slip into a past-due state, it brings shrinkage to the profit within a company.
  • Plus, let them pay you via wire transfer, direct debit, credit or debit card — online, through an instant or scheduled payment, so they can settle up right away.
  • It is also important to put the plan and its terms in writing and have both parties sign it.

Stay organized and know where every contract is in the agreement process and the status of every invoice. Contact management systems and accounts receivable management systems can help you process, review and access documents faster, and more easily track and report on status. Personalizing communications gives you the opportunity to communicate directly with your customers, so you can determine what’s causing the non-payment and keep a good customer relationship. That should drive how you proceed with collections, not a rigid, automated process.


The first step involves adding the balance for accounts receivable at the beginning of the reporting period to the balance at the end and dividing by 2. Accounts receivable (AR) is an accounting term that refers to sales for which payment has not yet been received. The customer has not paid for the good or service received at the time of the transaction. Instead, the business has extended credit to the customer and expects to receive payment for the transaction at some point in the future.

Accounts receivable collection

Ensure that all contract documents are easily accessible and set your system up to receive e-signature documents as well as scans. There are a variety of standard techniques used to contact customers and extract payment promises from them. Set up work scheduling that keeps the collections staff from being involved in any activity other than collections during peak calling hours.

Be flexible in your payment terms

BlackLine Magazine provides daily updates on everything from companies that have transformed F&A to new regulations that are coming to disrupt your day, week, and month. Finance and IT leaders share a common goal of equipping their organizations with ways to work smarter to enable competitive advantage. This intersection between CFO and CIO priorities is driving more unity in terms of strategy and execution.

Accounts receivable collection

Now with invoice automation software, customers can pay invoices from anywhere. Consider an AR workflow management software or adopt an AR automation solution. These will help you track balances and better monitor when customers need to pay their invoices, creating an optimal accounts receivable management system for your business. While collecting on past due invoices is always a priority for most companies, it needs to be done strategically. Ignoring the accounts receivable (AR) process can significantly reduce your cash flow and hurt your company’s bottom line.

Schedule for Peak Periods

Invoices that are accurate and clear about the terms of payment will help to avoid confusion. The invoice should include all the terms that were agreed to at the point of the transaction. Companies come to BlackLine because their traditional manual accounting processes are not sustainable. We help them move to modern accounting by unifying their data and processes, automating repetitive work, and driving accountability through visibility.

  • You may want to consider augmenting your internal staff by partnering with capable experts to ensure efficiency and thoroughness.
  • Accounts receivable is an often misunderstood part of the financial world.
  • BlackLine’s foundation for modern accounting creates a streamlined and automated close.

While the responsibility to maintain compliance stretches across the organization, F&A has a critical role in ensuring compliance with financial rules and regulations. Together with expanding roles, new expectations from stakeholders, and evolving regulatory requirements, these demands can place unsustainable strain on finance and accounting functions. Timely, reliable data is critical for decision-making and reporting throughout the M&A lifecycle. Without accurate information, organizations risk making poor business decisions, paying too much, issuing inaccurate financial statements, and other errors. F&A leadership can have a significant impact by creating sustainable, scalable processes that can support the business before, during, and long after the IPO.

Accounts Receivable Collection Agency Insights

Automate invoice processing to reduce manual invoicing costs, maintain compliance with e-invoicing regulations, and increase efficiency across your invoice-to-pay process. You should also agree on a uniform naming convention for documentation. In order to collect on a receivable, you will need to generate documentation supporting your claim.

It improves collaboration between teams and automates mundane tasks such as invoice preparation, report generation, etc. It enables your staff to focus on higher-end activities such as building strong customer relationships, solving complex disputes, and identifying trends and patterns in customer behavior. Accounts receivable, or AR, collections is the process of recovering debts owed to a company.

How to handle your customer not paying: Tactics that work

One way to avoid the “check is in the mail” excuse is to implement electronic payments for your clients through Automated Clearing House (ACH) so they can pay electronically and boost your cash flow immediately. “As a bank we love to see diversification,” he said. “We love when people have contracts with Walmart or Target but also with smaller customers so that it’s easier to run the business in terms of cash flow.” Another way to help manage accounts receivable is a 2/10, net/30 discount, where customers receive a 2 percent discount if they pay within 10 days, instead of 30. Having an open conversation with clients can not only work to build stronger client relationships for your business but also allow you to understand why the payment was late and avoid that in the future. Whomever you choose to manage accounts receivable needs to understand that they must contact the client on the first day that a payment is late.

Offer past-due balance discounts and webinars.

Even then, ensure that you do not jeopardize relationships or hurt the reputation of your business. A company’s accounting department records accounts receivable and AR collections on its balance sheet. If a company has a receivable, an account receivable is created, and its balance is recorded as an expense while the related revenue is recognized. An account receivable collection is an asset, however, as it represents incoming cash. You may want to consider augmenting your internal staff by partnering with capable experts to ensure efficiency and thoroughness. With success, you can accelerate the collection of receivables and help optimize the working capital your organization has to work with.