Accounts receivable control allows you to know whether you will have enough to cover your company’s expenses and make a profit. Monitoring this process helps you to see whether your expected receipts will be confirmed and to combat default.
Failure to pay due attention to the flow of accounts receivable exposes the business to several challenges, such as difficulty in carrying out financial planning and late payments . These elements can cause bankruptcy, so they’re more than simply a bother for the business owner.
In addition to having sufficient monitoring and analytical tools, it is essential to have a complete grasp of the company’s financial flow in order to prevent these bottlenecks.
Continue reading to check out practical tips for optimizing accounts receivable control and how technology makes a huge difference in this process.
Accounts receivable control: why is it important to pay attention to this process?
I know that when you set up, you probably had to calculate how much you would spend and what you would need to buy.
In other words, you had to do some financial planning. After all, to execute any idea, you need money.
Accounts receivable control allows you to estimate how much you will have at the end of a specific period — week, month, quarter or year — to keep the company running and achieve business objectives.
In short: accounts receivable are amounts that must be received on a previously agreed date. With this receivable calendar in hand , you can plan better and with more clarity.
This may not be the case all the time. Money fails to come at the anticipated amount or on the anticipated date due to problems in the banking systems, defaults, etc.Monitoring these delays and knowing what to do in such situations is essential for the financial health of the business.
Charging customers correctly and having a reserve for unforeseen events are some easy alternatives to put into practice when you have good control over your accounts receivable .
Accounts Receivable VS Accounts Payable
This may seem pretty obvious to business people with experience, but it is understandable that those new to business may mix up accounts payable versus accounts receivable control. So let’s briefly elaborate on this matter.
Accounts payable are the obligations that a business must fulfill . This includes, for example, paying suppliers.
Accounts receivable are all amounts that the company is entitled to receive from third parties , such as revenue from sales made on credit.
Importance of accounts receivable control for a company
After checking what accounts receivable control is, you must have realized that it is vital to understanding the reality of your business and having good short-term planning.
After all, managing these accounts means having essential data at hand to make assertive decisions and anticipate potential crises , adopting preventive measures to minimize potential problems.
For example, you can estimate whether working capital will be able to cover supplier payments or whether you will need to resort to other sources of funds, such as financing, among other similar situations.
Likewise, controlling your accounts receivable routine allows you to monitor the regularity of payments, so that you:
- Schedule collection actions;
- Profile your customers;
- Understand the level of sales concentration.
5 tips to optimize accounts receivable control
In practice, accounts receivable control can be carried out in different ways depending on the needs of each business. However, in essence, the reality of this administrative area is the same. The tips below apply to all cases. Check them out!
1. Be organized
The first commandment is to be organized when it comes to a company’s finances. This means knowing exactly when each bill is due, how much you can expect each month, and how payments will be made.
Also monitor which customers are the most late and which ones tend to pay in advance. Be prepared to deal with each profile.
It is important to have a routine for issuing invoices . To avoid late payments, start by not delaying the invoice. This is unfortunately still very common in many companies.
So, to be more organized and have access to this financial data, it is necessary to have all of it in one place. The ideal is to have a management system. But if this is not yet your reality, Excel spreadsheets can help, initially.
2. Optimize your billing process
Don’t be afraid to charge : if you have provided a service or sold a product, it is your right to receive payment. However, to do so, you need to know who owes you and how much. It may seem simple, but not all companies are clear about this when it comes to charging.
Proof of this is when a customer is charged unduly, which causes embarrassment and legal problems in some cases. It is also common for the business owner to have a close relationship with the defaulter, even feeling embarrassed to charge them.
To optimize this process, as we mentioned in the previous topic, it is essential to have access to financial data and to have a management system. This way, you ensure that only debtors will receive the charges.
And best of all: the inconvenience will not come from you , but from technology, through messages via WhatsApp, email and SMS.
3. Keep an eye on defaults
Defaulting on payments is a reality in any type of business. Therefore, you must learn how to reduce it and work with it. Monitor payment deadlines and schedule messages to notify yourself when these bills are due.
By doing this, you can better plan the estimated amount to be paid into your account and you will know what to do if you don’t receive it. Another important aspect of monitoring defaulters is identifying their profiles, which allows you to find out how to collect from them in the best way.
Here, technology is also crucial to carry out this control. With this feature, you will not need to check each sale and manually calculate how much you are due to receive.
4. Offer perks for early payment
It’s best for your business to get paid early. But why would a customer pay early if they don’t get anything out of it?
Offering benefits to those who pay on time and to those who pay in advance helps reduce defaults and improves control of accounts receivable. Benefits range from discounts, gifts or access to specific content, products and services.
5. Use technology to control cash flow
You can control your accounts receivable using a spreadsheet, as we mentioned, or even manually. However, the advantages of using a good system that has financial and cash flow functions are undeniable.
With technology, controlling how much goes in and out of the company becomes much easier and you will be able to calculate the impact of default more assertively.
Using an online solution allows you to estimate a target limit for debtors and work towards it. Some systems even have automatic collections, which reduces the work of collecting from customers individually.