Business Finance

How to Efficiently Manage Your Business Accounts Receivables

Account receivables are known as the cash balance due to any company in the course of goods or services purchased but not yet paid for by the customer.

Your cash flow and all business activities management are directly impacted by the receivables because it is centred on efficient and effective money management.

Before taking the risk, a well-designed process for accounts receivable will enable you to foresee and minimize threats to your cash flow. You should be able to trust the process when making a rational decision for your business financial status.

Running out of cash in a business decreases its liquidity. The financial safety needed to keep the business operated daily is no longer secured.

The business activities are exposed to threats, without having enough money. 

By not being able to buy supplies for new jobs or pay employees on time. 

To avoid going out of business, you should make sure your cash flow is not harmed. Learn how to efficiently manage your business accounts receivables below:

How To Efficiently Manage Your Business Accounts Receivables

In this article, we’ll be discussing how to efficiently manage your business accounts receivables.

1. Use Electronics Billing And Payments

Get rid of paper checks, and slow mail billing because it takes time to track and is easy to lose. Change to an electronic invoicing system that enables customers to easily make payments online.

Combine your payments and invoices to automate your record-keeping and reduce the possibility of human error and workload.

Also, you can set up options for individual systematic follow-up when payments are overdue. Without wasting much time, your business can keep up with payment collection and maintain customer-specific correspondence.

2. Employ The Proper Key Performance Indicator (KPIs)

Monitor the following account receivables (AR) performance measures to ensure the procedures are effective:

Days Sales Outstanding (DSO)

This is the major statistic you need to lower with process optimization. The DSO is the typical time required to collect payment. It should not exceed 30 days.

Average Days Delinquent (ADD)

This is the particular number of days when customer payments are due. If it increases, evaluate your procedures to make sure billing is proceeding without delay and AR is properly staffed to handle collections.

Turnover Ratio

This figure signifies your cash flow and shows how prompt you’re collecting revenue from customers. 

It needs to be low because a high ratio indicates that you have a lot of unpaid revenue which will cause you to review your billing and collections procedures.

Collection Effectiveness Index (CEI)

This is the proportion of accounts on which you generate income. This should be as close to 100, showing that you have received payment from every customer.

3. Formulate Credit Control

Before extending credit, consider the risks. Put each client through the same credit evaluation procedure, and be good at judging their personality. 

Know how to evaluate each client’s creditworthiness. In addition to signing contracts, and obtaining referrals, bank guarantees and recommendations, you need to apply caution.

4. Have Terms And Conditions Document

Explain your payment conditions and expectations clearly. If you impose interest or late payment costs, your payment terms should be strict but flexible. 

Make sure the policies are well understood to avoid misunderstanding and let them sign the appropriate contract, by keeping all client documents, emails, voice messages texts, and forwarded documents.

5. Create And Send Consistent Invoice Templates

Sending an invoice immediately after services and ensuring that all information is accurate and current is very important.

Always design it with a logo, address, phone number, project name, and invoice number so that it appears expert and is simple to understand. 

List the proper payment schedules and terms, observe the procedure closely, keep an early reminder and make regular contact.

6. Organize AR Report To Evaluate Receivables Liquidity

You should be able to measure, report, and estimate your liquidity. It becomes part of your business value and viability factors.

Your AR plan should often include the ability to quantify it through the reporting process, and receivables should be easy to evaluate on-demand, weekly, monthly, quarterly, semi-annually, and annually.

7. Develop A Collection Method

Create a policy for dealing with past-due accounts. Determine the causes of the late or missing payments and look into each person’s situation. 

Have the belief that your consumers intend to pay but simply forgot, misplaced, or experienced a family emergency that prevented them from doing so. 

Encourage them to pay early by setting up a payment schedule and having a collection agency strategy.

An invoice can become a bad debt if payment is not received for 60 to 90 days. 

Having a credit determination process before extending credit to anyone is very important. You can deny service to customers who often make late payments. 

8. Offer Discounts And Payment Plans

Make it easy for customers to pay on time by providing convenient payment methods, and creating discounts for early payment to avoid late payments and time-consuming collection procedures.

Payment plans can also be offered to clients with consistent bad cash flow, and create a systematic way to collect payments without interfering with the collection process.

9. Ensure Quality Customer Experience

Over-automation of several payment reminders should be avoided, it is an easy way to irritate and lose customers. 

Use a receivable management platform that personalizes procedures to provide customers with a one-on-one experience rather than impersonal automation to save time.

To find out why they aren’t paying and maintain a positive customer connection, personalizing messages allow you to speak directly to customers. That, not a rigid, mechanized process, should determine how you handle collections.

10. Use Collection Agency As A Last Resort

A collections agency is likely not necessary when dealing with a first-time late payment customer and avoid sending a debt collection agency because doing so will almost affect your customer relationship.

Also, it is better to negotiate directly with the customer if you can because the agency fee is as high as 25% or 50% of the due amount. 

Moreover, a collection agency can later be required if there’s an emergency but the client must be fully aware. They might probably have been unresponsive up to this point, but a warning that the bill would be collected might persuade them to eventually pay the debts.

Other Topics on Receivables Management


How to efficiently manage your business accounts receivables may be a long process and costly for you.

Electronic invoices and payment, with the relevant tools, can reduce the number of time spent on these operations and encourage early collection payment.

Customers’ relationships can be damaged by forceful and impersonal tactics like persistent automated payment reminders and collections agencies. 

Automation and personalisation are combined in a more effective method to save you time and strengthen customer relationships.