What You Should Know About Accounts Receivable Collections
Your company is constructed on several core pillars. Sales, marketing, and accounting all play critical roles in supporting day-to-day operations, and each helps your organization grow and thrive. The accounts receivable process is a critical component of any successful firm.
Accounts receivable (A/R) refers to all outstanding invoices that have not been paid. It’s an essential piece of your company’s puzzle. The phrase for classifying and collecting payment for those invoices is accounts receivable collections.
If you want to know more about this, please continue reading this article!
Best Practices for A/R Collections
Billing problems and pricing concerns, such as unapplied promotions and discounts, are major causes of disagreements. Often, the problem is remedied before it becomes uncollectible.
The delinquent account may be sent to collections if a dispute cannot be settled. The typical procedure is as follows:
- Before taking any action, it is best to establish that the customer was indeed issued an invoice.
- The customer is then contacted by phone or email and advised that their bill is past due. They are instructed to pay quickly or face late payment penalties or interest.
- A service member may call to follow up if the consumer does not answer within 24 to 72 hours.
- At the same time, a letter is mailed.
Depending on the company’s grace period, this process may be repeated numerous times. Payments are deemed seriously delinquent when they are more than 90 days past due, and the average collection period for accounts receivable is 30 days.
When an amount exceeds 120 days or is judged uncollectible, the account may be transferred to a third-party collections agency (or debt collector).
Ways to Improve A/R Collections
Examine Your Cash Flow History
The first step is to examine your cash flow and determine which period has the most significant percentage of past-due bills. You can then use this information to decide whether increasing your collection efforts will help you enhance your accounts receivable collections and optimize profitability.
Improve Your Sales Process
One method is appropriately managing the sales process and ensuring that your invoices match the parties’ agreed-upon payment terms and conditions. You can also build a system to remind clients of their bills and send payment reminders automatically.
Improve Payment Choices
Making it easier for clients to pay is an excellent method to enhance payment compliance. You can accomplish this by allowing clients to pay via your website, phone, or email bills.
Provide Past-Due Balance Discounts as Well as Webinars
Provide past-due balance incentives to encourage customers to pay their obligations immediately. You can also host webinars with specialists who have researched the effects of debt on people’s financial lives to assist them in comprehending how paying off debts can benefit their economic status in the long run.
Use AR Workflow Management Software/Solutions
Customers can now pay invoices from anywhere, thanks to invoice automation software. Waiting for the mailman or driving to the bank is no longer necessary. Consider implementing an AR workflow management software or an AR automation solution.
These will assist you in tracking balances and monitoring when clients need to pay their invoices, resulting in a compelling accounts receivable management system for your company.
Accounts receivable collections are a vital aspect of your company’s financial health. You can optimize your accounts receivable management and enhance profitability by implementing the best practices above. Stay proactive in addressing late payments and consider adopting AR workflow management software to streamline the collection process.
Ready to optimize your dental practice’s financial health? Partner with Ash Dental CPA, the leading dental accounting firm specializing in serving healthcare professionals. Take control of your accounts receivable collections and enhance profitability. Contact us today!