A Step By Step Explanation Of The Account Receivable Process

27 Jun 2022 | Accounting, Finance

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Hooshang Bakht

Brego Business was started with a mission to make entrepreneurship easy. Our goal is to help business owners grow and scale without having to deal with the day-to-day stress of running a business. We specialize in providing services that help business owners grow their businesses, including search engine marketing (SEM), social media marketing (SMM), LinkedIn marketing, video production, accounts receivable (AR), accounts payable (AP), internal audit, VCFO, and recruitment. We have helped more than 500 brands grow their businesses. We work closely with the clients to understand their unique needs and develop customized strategies that deliver measurable results.

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Account Receivable Process

Streamline  Accounts Receivable process is essential for a company to manage and collect the amount of money owed by its customers for the purchases made on credit. This process is critical for maintaining healthy cash flow and preventing bad debt, which directly impacts a company’s financial management and profitability. The Accounts Receivable Process involves several steps, including generating invoices, tracking payments, following up on overdue accounts, and reconciling customer accounts.

A streamlined Receivable Process involves setting up clear credit policies, regularly reviewing customer creditworthiness, and promptly following up on overdue accounts to minimize the risk of bad debt. Utilizing technology solutions such as invoicing software and payment processing systems can also help to automate and streamline the process. Regular monitoring of the process is necessary to ensure timely payment collection and reduce bad debt.

In conclusion, Streamlining the Accounts Receivable Process is crucial for a company’s financial health, as it requires a combination of effective policies, regular monitoring, and technological solutions. An efficient Receivable Process can help to maintain healthy cash flow, prevent bad debt, and improve profitability, which is essential for the success of any business.

Importance of a streamlined accounts receivable system

A well-executed Accounts Receivable Process can help a company streamline accounts receivable to ensure early and timely payments, and minimize the need for follow-ups on payment invoices issued to clients. This approach allows for efficient management of the company’s balance sheet. Effective management of accounts receivable is essential in streamlining the payment process, reducing the risk of bad debt, and improving cash flow.

A systematic Accounts Receivable Process involves several steps, including creating and sending timely invoices, tracking payment status, and following up with customers on overdue accounts. Companies can also leverage technology solutions, such as accounting software and payment processing systems, to automate and streamline the process. Regular monitoring of customer creditworthiness and clear credit policies can also help minimize the risk of late or non-payment.

  • Start with new customers. Once you have established a suitable AR process, begin with applying it to new customers. You can gradually inform the old clients about the accounts receivable and ask them to follow the same method.
  • A systematic AR process guarantees a streamlined workflow, increases cash flow and allows your accounting department to be time-efficient.
  • It provides real-time insights into your accounting system. If your AR process is not accurate, it will hinder the company’s cash flow and account management.
  • Once the account receivable process is focused on timely payments and clearing invoices, the AR/accounts team can easily focus on other aspects that require extra attention.
  • The business also gains a better sense of its financial stability and liquidity. Working on real-time transactions and payments can help in maintaining a clear balance sheet in a timely manner.

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Streamline accounts receivable process can help ensure that your business maintains profitability and a consistent cash flow. To achieve this, many businesses opt to automate their receivables management using software that best suits their needs. Manually inputting data into software portals using spreadsheets and documents can be time-consuming and prone to errors. By using software solutions such as UniCommerce and eVanik, you can streamline your receivable process and reduce the risk of mistakes and inaccuracies.

What are the elements of a great AR process?

It is important for you to understand the elements of a great AR process and how you can turn your simple accounts receivable activities into an efficient system.

Setting up a strong invoice format

To Streamline accounts receivable process begins with having a well-established invoice format. Keeping it simple and clear while including every necessary detail is crucial. Your invoice serves as the most important document for buyers to make payments for the services or products they received from your business. To ensure prompt payment, mention an expected payment date and follow up in a manner that streamlines the process and encourages payment on or before the due date. Additionally, include all payment terms and conditions, as well as all relevant information about your business, to prevent any confusion for those responsible for clearing the invoice.

Each invoice should have a unique number to make tracking easier. If you are ever worried about reviewing an invoice or information, you just have to mention the invoice number and the details will be visible to you in your system. You can choose to proceed with either an electronic or paper invoice or send both.

For the sake of convenience, send an invoice as soon as the service is provided and mention the desired date for payments as well.

Creating a system that tracks invoices issued

To streamline accounts receivable, your bookkeeping and accounting work is not complete once you have sent out an invoice for payment. You must keep track of the invoices you have issued. Either use automated software or create a well-established system to track invoices. As mentioned earlier, every invoice must have its own unique code. So you can refer to this code for further use. This way, you can track the bills you have issued.

AR software can automatically inform you if your payment is not issued or there is no follow up. The software flags the pending transaction, and you can connect with the client to ask the reason for the delay or request them to make the due payment. You can also run regular reports for reconciliation if required.

Have an effective follow up with the client

To streamline accounts receivable, make sure you do not leave the invoice unattended in the software and remember to take follow-ups or necessary updates from your clients. Once you have shared the invoice with the customer, take a regular follow up until the payment is cleared. If you own a company or have an ecommerce business, it is important to understand that receiving payment is not the final step in the process. You have to keep in touch even after the payment has been made. Sending a thank-you note and checking in if they are interested in further services or if they want to repeat the same purchase again. This way, you will not lose an established client and your account receivable process will start again in a systematic way.

Set up a reconciliation process if required

Once your process is completed by receiving payments and ensuring follow-ups with the client, you must start working on the reconciliation process. If you have a transaction issue or the payment is received twice, you may reconcile the process through automated software.

This reconciliation process is particularly important for eCommerce businesses, which have to deal with issues of refunds, platform fees/commissions, high volumes of transactions, and transactions from multiple channels.

If you are dependent on a manual accounts receivable process, it is crucial to building an excel sheet. This will keep all your AR information and records in the same place, and you will only have to ensure that the file is kept up to date. Setting up a record process once a month is the best thing you can do for automated software and to avoid any blunders or calculation mistakes.

 Using the software is essential for eCommerce business. Read our blog on the subject here!

How do accounts receivable and accounts payable go hand in hand?

To streamline accounts receivable, a step-by-step explanation of the account receivable process involves recording customer invoices and payments, tracking customer balances, and reconciling accounts with the general ledger. The process starts with generating an invoice for a customer, and then recording the payment once it is received. This is an ongoing process and it is important to ensure that all invoices and payments are recorded accurately and on time.

One of the key challenges in this process is keeping track of customer balances. This is because customers often make payments at different times, and it is important to know the amount that each customer owes so that you can follow up on overdue payments if necessary. Bookkeeping and accounting play a crucial role in the process of accounts, as accurate records are essential to ensure that everything runs smoothly.

Brego Business Accounting Services understand the importance of the account receivable process, and they are committed to helping their clients maintain accurate financial records. They offer a wide range of bookkeeping and accounting services, including accounts payable accounting, which means they can help you keep track of all your company’s financial transactions.

At Brego Business Accounting Services, they specialize in providing comprehensive bookkeeping and accounting services that streamline accounts receivable and help their clients improve the efficiency of their accounts payment process. They take care of all the details involved in the process of accounts, including reconciling customer accounts with the general ledger. They also provide valuable support to their clients, offering advice and guidance on how to streamline accounts receivable and improve their financial management. With their expertise, you can be sure that your company’s financial records are in good hands, and that you will have accurate information about your customer’s payment history. In conclusion, the account receivable process is an essential part of financial management, and Brego Business Accounting Services are here to help you streamline accounts receivable and get the most out of your financial records, whether you are a small business owner or an experienced accountant.

To provide you a better understanding of your finances, accounting outsourcing services. Learn more about us by visiting our website.

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Frequently asked questions

What is account payable accounting?

Accounts payable accounting refers to the process of recording and managing a company's outstanding invoices and bills, including tracking payment due dates and ensuring timely payment.

How can Brego Business assist with accounts payable accounting?

Brego Business provides comprehensive accounts payable accounting services, including invoice processing, payment scheduling, and vendor management to ensure timely payment and avoid late fees.

What are accounts payment?

Accounts payment refers to the process of paying off outstanding bills and invoices, which includes tracking payment due dates, scheduling payments, and managing vendor relationships.

How can Brego Business help with accounts payment?

Brego Business can help streamline accounts payment processes by managing vendor relationships, tracking payment due dates, and scheduling payments, which can save time and reduce late payment fees.

What is the process of accounts?

The process of accounts involves recording, summarizing, and analyzing financial transactions to provide accurate financial statements, including the balance sheet, income statement, and cash flow statement.

How can Brego Business assist with the process of accounts?

Brego Business provides comprehensive bookkeeping and accounting services, which includes managing the process of accounts, including recording transactions, reconciling accounts, and preparing financial statements.

What is bookkeeping?

Bookkeeping is the process of recording financial transactions, including sales, purchases, receipts, and payments, which is essential for maintaining accurate financial records and preparing financial statements.

How can Brego Business help with bookkeeping?

Brego Business provides comprehensive bookkeeping services, including recording financial transactions, reconciling accounts, and preparing financial statements, which can help ensure accurate and up-to-date financial records.

What is accounting?

Accounting involves the process of recording, summarizing, and analyzing financial transactions to provide accurate financial statements, which can be used to make informed business decisions.

How can Brego Business help with accounting?

Brego Business provides comprehensive accounting services, including managing financial transactions, preparing financial statements, and providing insights and advice to help businesses make informed decisions.