Our Easy Guide to the Accounts Receivable Process – Part 1
Companies must pay attention to payment methods when serving customers well. As an entrepreneur, providing multiple payment methods is essential to ensure customer satisfaction. With the right mix of payment methods, your customers will have more options, making purchases easier and more convenient.
Regarding accounts receivable (AR) processes, offering credit to customers can be a great way to increase sales. However, it can also be precarious if the customer doesn’t pay their bill promptly. That’s why CPA firms recommend having a strong AR process to ensure that customers pay their bills on time and that any overdue payments are handled appropriately.
What Are Accounts Receivable?
Accounts receivable is one of the most important areas of financial management for any business as it represents the money owed to the business by its customers and can come from various sources. This could include sales on credit, services provided, or even goods delivered but still need to be paid for.
Tracking accounts receivable helps businesses stay on top of their cash flow. By monitoring customer payments, businesses can better anticipate when money will come in and when to cover expenses. This helps them stay on top of their finances and plan for the future.
Important Steps in the Accounts Receivable Process
1. Establish Credit Application Policies
CPA firms always stress credit application policies because your AR can impact who you allow purchasing on credit. This arrangement can benefit both parties by allowing customers to get the goods or services they need without paying upfront. However, being careful when selecting who you allow to purchase on credit can result in lost revenue, bad debt, and other financial issues for your business.
Establishing credit application policies will help you decide who is eligible to purchase on credit and how much credit you will extend. This way, you only expand credit to customers you trust to pay back the due amount.
2. Invoice and Provide Documentation to Customers
Remember, every accounts receivable transaction should be documented, so ensure you provide customers with an invoice and other relevant documentation at the time of purchase. This will help ensure that you have a clear transaction record and that your customer knows the amount due and when it is due. Having a clear record of accounts receivable transactions can also help you in disputes or if you need to take legal action against a customer who fails to pay.
3. Set Specific Deadlines
If you hire a CPA firm for your accounts receivable, you’ll notice that they work with customers to set specific deadlines for payment. Setting and enforcing deadlines is essential for maintaining a healthy accounts receivable balance. When customers know exactly when to expect a payment, it encourages them to pay on time and avoids potential late payment issues. Additionally, establishing deadlines helps track which invoices have been paid and which are still outstanding.
Understanding the accounts receivable process is essential for the success of any business. A good accounts receivable process will help ensure that customers can pay off their bills on time and that the company can track and collect payments. Following the steps summarized in this guide, businesses can effectively manage their accounts receivable process and ensure their customers get the best possible service.
Ash CPA is a reliable CPA firm in Nashville that can support companies with accounts receivable management. Our experienced team of professionals can help you set up an effective accounts receivable process and guide how to manage and maintain it properly. Contact us today!