A Quick Guide to Understanding Accounts Receivable Management

Dec 20, 2021 by Daniella Bourguetts

Accounts receivable (AR) management is an important part of maintaining healthy cash flow. Having a streamlined and efficient AR process prevents your existing capital from going to waste, which puts your business in a better position to reduce debt, lower costs, drive growth and outperform your competitors.

On average, US businesses have 24% of monthly revenue tied up in AR, payment terms or trade credit.

A flawed billing and collection process could dry up your company’s cash flow or cause operations and production to slow down, driving costs even higher for your business.

Why is accounts receivable management important?

Collecting receivables is key to maintaining healthy cash flow, which means it's essential for everything from paying your staff to acquiring the inventory needed to serve customers.

Research shows that the longer it takes to collect payment on an invoice, the less likely that the debt will ever be collected. In other words, late payment can easily turn into nonpayment, which means writing off bad debt and nobody wants that.

Accounts receivable are best managed on a consistent and routine basis. Regardless of your system, ensuring payment is crucial.

Here's a snapshot of what a great AR process looks like:

  • Invoices are created automatically, delivered electronically, and scheduled in advance.

  • Timely billing reminders are sent to customers according to their collection plan settings.

  • Most payments are scheduled and automatically collected from accounts on the date they're due. Customers can self-service and make payments 24/7 via an online portal.

  • Collected payments are matched to open invoices in the accounting system and payment reconciliation happens automatically, without any manual intervention.

  • Deposits are transferred into merchant bank account as soon as payments are processed and a report is automatically generated with details of a deposit, its transactions, and any invoices and sales orders a deposit affects.

We break down how to optimize your accounts receivable process in this five-step explainer.

Most Common AR management challenges

Businesses today face many challenges when it comes to their invoicing and accounts receivable process.

Some of the common challenges include: difficulty matching payments to invoices, constantly having to resend copies of invoices, fielding many customer inquiries about invoices, offering a customer experience that is less than expected, unable to accept credit card payments in a secure environment, receiving late payments and rising Days Sales Outstanding (DSO).

If your business has experienced any of the common challenges below, you should consider investing in an AR management solution.

  • Failing to follow up with customers on time

  • Not getting paid within the agreed upon terms

  • Writing off overdue receivables as bad debt

  • Not having enough time to manage the collections process

  • Failing to resolve payment disputes

  • Errors on bills, invoices, or credit terms or duplicate payments

  • Allocating cash payments incorrectly

Accounts Receivable Automation

Modern AR management solutions like Paystand alleviate these problems with features like scheduled billing reminders, recurring payments and subscriptions, collections automation, automatic reconciliation, and tools to help you manage disputes and refunds.

Interested in learning how AR automation can help you overcome these challenges?

Paystand is a digital payments platform that helps businesses streamline and automate payment processing and accounts receivable management. We integrate with most ERP software systems and offer flat-monthly pricing to keep your costs low and predictable.

If you’re interested to know about how we can help you improve your cash flow cycle, contact one of our experts today.