Rose Report: Issue 12

Accounts Receivable Tips and Techniques

accounts receivable tips and techniques - issue12-pic-story3To keep cash-flow on track, and financial statements accurate and transparent, an organization must make sure its accounts receivable function operates smoothly. Here are five important areas to think about when it comes to accounts receivable.

 1. A written process should be put into place which is followed each time a new customer relationship begins. Make sure you clearly explain the billing process, set a pay-by date for the customer, and ensure that you know exactly who within the organization to send bills and correspondence to.

2. For customers both old and new, double check that you have the correct contact information before sending a bill, and that the purchase order number has been included. This may seem obvious, but overlooking this step could potentially disrupt your cash-flow. If the bill ends up on the wrong person’s desk, it could take weeks to find its way into the hands of the person who can actually pay it, or it may never find its way there at all. Sending it without a PO could cause similar delays. Many organizations accept bills electronically or through email. Using this method can also speed up processing.

3. Ensure there is a connection between billing and collections. Open lines of communication are essential if you have different employees performing these functions. There should also be an established system followed to ensure that collection occurs after billing. If the same employee performs billing and collections, there should be an additional layer of oversight to ensure receivables are actually getting collected on a timely basis.

4. An extremely important component of accounts receivable is making sure that revenue is entered into the correct period so it is reflected accurately in financial statements. Many organizations will use an unbilled receivable to account for invoices dated in a subsequent period from when goods or services are supplied.

5. Never delete invoices that have been issued. If your billing department makes an error on an invoice, the inclination may be to delete it, but doing so could create a host of future complications. Instead, issue the customer a credit memo and then reissue a new invoice. For example, if you issue a $100 invoice for goods that only cost $90, keep the incorrect invoice on record, but send the customer a credit memo for the $100 invoice plus issue a new invoice for the correct amount of $90. This way, each part of the process is transparent and accounted for.

Following these five steps will help improve your cash flow and financial statement accuracy.