Most companies that take payments from customers will have an accounts receivable department, depending on their size. If you’re wondering what accounts receivable do, this team - which is also known as the credit control department- is responsible for ensuring that your company’s invoices are paid on time, and for chasing those that are overdue.
Why are accounts receivable teams important to business?
Accounts receivable professionals have a very important role to play in ensuring healthy cash flow in any business. Without this team of people, your invoices are vulnerable to being left unpaid* - costing you money and preventing you from paying your own bills. Funds that are tied up in overdue customer invoices risk impeding your cash flow. You may be left unable to pay your own suppliers, which could hold up the entire supply chain and cost you valuable business relationships. It could also hinder your ability to pay your staff wages or could prevent you from investing in vital new company equipment.
Having poor cash flow due to unpaid invoices often leaves your business with no alternative than to take out costly business loans and short term finance - costing you money.
How do accounts receivable carry out their job?
The accounts receivable team will start by keeping a record of every invoice your company has issued. Your analysts can help you to decide what kind of payment terms you set for your invoices, such as how long you will give your customers to pay and whether you will offer any incentive for early settlement.
When you set your payments terms, it is important to consider how long you want to be without access to owed money, see here. Longer payment terms may be attractive to customers and may help you to build your customer base, but they will also mean a long period of waiting for you. If you have a healthy cash flow, you may be inclined to offer longer payment terms. Giving your customers 60 or 90 days to settle an invoice is also likely to reduce the chance of them paying late.
Shorter payment terms, on the other hand, may put some customers off and may increase the risk of a customer paying late, and therefore use up more of your accounts receivable department’s time in chasing the invoice.
What accounts receivable do, involves regularly check upcoming invoice due dates and proactively reminding customers that a payment is due in advance.
There is also the more awkward side of the job that involves chasing very overdue invoices from customers that are showing little intention of paying. These customers can be very draining on your accounts receivable team’s time and can divert the attention away from good customers and those that just need a little reminding of their payment terms.
Your accounts receivable team is likely to be a highly organised team of individuals. They will likely have very strong accounting and finance skills. They also have the added challenge of managing relationships while chasing money. This will often mean striking a balance between being firm and assertive over receiving payments while taking care not to damage any valuable relationships.
Asking for money can be a tricky business, and reasons for non-payment of invoices can sometimes be sensitive. The accounts receivable team will need to judge where best to focus their time - on figuring out payment arrangements with long-standing clients rather than wasting too much time on those that have a bad reputation.
A credit controller will likely have his or her own system for managing customers that owe your business money. Traditionally, this task involved a lot of manual processes, inputting due dates, conversations and payment arrangements into spreadsheets. Typically, your credit control team would have had to spend time writing each email and making each phone call, systematically making their way through the document.
This time-consuming task could mean that some invoices slipped through the net, or your team was simply limited as to how much chasing it could do in one day.
How can new technology help in what accounts receivable do?
Today, a lot of the need for manual work in the accounts receivable process has gone. Smart software now exists to help accounts receivable teams to get through more invoices, faster. Take Draycir’s Credit Hound, for example. This intelligent system was defined specifically for the intention of extracting money from your clients that your business is owed. This helps automate many of the manual tasks involved in a credit controller’s job, such as issuing reminders. The Credit Hound system keeps track of the due date and the amount of each client invoice, and then automatically pushes out written reminders to customers systematically - both before they are due and at set intervals, after they become overdue.
This means that your accounts receivable team can chase up to ten times as many clients at once, resulting in more paid invoices. It also frees up their time to concentrate on the human element of their profession; sometimes it is best to focus your efforts on developing amicable relationships with a larger pool of smaller yet reliable customers than focusing all your time and energy on one larger invoice for a client that has a bad history with making payments.
Credit Hound allows accounts receivable teams to do just that - increase relationship building with good customers and filter out businesses with bad ones. If a customer is persistently refusing to pay, Credit Hound issues a series of reminders and warnings before the case is progressed.
To summarise, your accounts receivable team is crucial to the successful running of your business. Without this team, you are putting your cash flow at risk. Investing in your accounts receivable tools will help garner more successful results and will help your teams to develop long-lasting, lucrative business relationships. Get in touch to find out more about how our technology can help.