Running a service based business in India is not an easy endeavor. Among the many issues in a service based business is being paid on time. Managing your Accounts Receivable properly is the difference between a smooth cash flow and financial stress. In this article, we’ll examine the best accounts receivable methods to ensure your business is paid on time & we’ll also see how applying these methods can improve your financial wellness.
What is Accounts Receivable?
Before we jump into good practices, let’s define accounts receivable. Essentially, accounts receivable is the cash your clients owe you for services you supplied but haven’t yet paid for. Managing your AR means tracking payments and invoices and ensuring your clients pay out on time. Keeping up with your AR means your business has the cash it requires to keep working and expanding.
Is Accounts Receivable Important for Service Based Businesses?
For service based companies (where you are supplying a service instead of a product), timely payments are essential. As your revenue is usually associated with the services you offer, any cash flow delay can influence your cash flow. This makes accounts receivable management an essential element of your business finances.
Good AR practices keep you paid on time and keep your clients happy. Clients that are at ease with the payment procedure and believe things are organized generally remain with you for the long term.
Best Accounts Receivable Practices
Here are some of the best AR practices for your service based business:
1. Set Up Clear Payment Terms Upfront
Step one to manage your AR is having clear payment terms with your clients from the beginning. This includes specifying how long your clients should wait after an invoice is sent, what payment methods you accept and late payment penalties. Be certain these terms are written directly into your service contract or agreement to stay away from misunderstandings later on.
Knowing your clients’ payment terms upfront lessens the chance of late payments. You might even want to provide rewards for early payments (like a small discount) to encourage timely payment.
2. Send Correct and Timely Invoices
Inaccurate or confusing invoices are a top reason clients hold off payments. To prevent this, always ensure your invoices are accurate, detailed, and clear. Make sure you include on every invoice the following:
- The service offered.
- The due amount.
- Due date for Payment.
- Your accepted payment methods.
Equally important is sending invoices promptly after finishing a service. The faster your client gets the invoice, the earlier they can process it. Delay in sending invoices can influence your cash flow by causing a lag in payment.
3. Use Electronic Invoicing & Payments
Gone are the days of paper invoices. Switch over to electronic invoices and payments for your AR processes. With electronic invoicing, you send out invoices straight to your customers by email or via an invoicing platform. This makes it quicker for your customers to get and evaluate the invoice.
Offer multiple electronic payment methods like credit card payments, bank transfers or web based payment gateways like PayPal or UPI. The simpler it is for clients to pay, the quicker you’ll get payments.
4. Watch Your Accounts Receivable Regularly
Keeping track of who owes you money when it’s due is important to controlling your cash flow. Create a method to monitor your accounts receivable. Whether it is a spreadsheet or committed accounting software, you need a process mapped out.
Regular monitoring will alert you of overdue payments earlier so you can communicate with clients before it worsens. Multiple outsourced accounting and accounts receivable services include tools to monitor payments, send reminders, and even automate parts of the process.
5. Send Polite Payment Reminders
Often clients forget to pay in time and simply want a helpful reminder. Sending polite payment reminders several days before the due date may stimulate your client to make the payment.
When a payment is late, provide an immediate reminder. Maintain the overall tone as polite but firm and always give a copy of the invoice for reference. Giving several reminders at intervals (for instance, a handful of days following the due date and again a week later) is a great way to remind without becoming aggressive.
6. Establish a Clear Collections Policy
Despite having the most effective systems in place, occasionally a client pays late or never pays at all. To handle these situations efficiently, develop a clear collections policy. Your collections policy ought to define :
- When to mail the very first reminder.
- How many reminders to send before escalation.
- What to do when the client still does not pay (contacting a collection agency or even filing a lawsuit).
This policy informs your team what you should do and when to get it done, reducing anxiety and confusion in case a client goes delinquent on payment.
7. Offer Flexible Payment Plans
For service based businesses, flexible payment plans are a win-win proposition. If a client is having difficulties paying a big invoice at a time, split it into smaller payments. This can boost the chance of being paid while keeping an excellent relationship with the client.
Make the payment plan professionally by making it in writing and make sure the client accepts it. This way you know when the payments are due and can follow up in case they’re late.
8. Outsource Your Accounts Receivable Services
In case managing your AR is taking way too long or is too complicated, consider outsourcing your accounts receivable services. Some business organizations outsource this function so they can concentrate on their main operations while professionals manage their invoicing, payment reminders and collections.
Outsourcing may also provide added expertise and tools to your AR process. Many AR services offer software and systems to help automate and simplify the process so you get paid quicker and with a lot less problems.
Final Thoughts
Any service business needs effective accounts receivable management. Set clear payment terms, use electronic invoicing, monitor your accounts & offer flexible payment plans to reduce late payments and boost cash flow. Also, outsourcing accounts receivable services can free you to concentrate on growing your business instead of controlling collections.
For expert assistance with your accounts receivable procedures, consult StartupFino. Trust our experts for the best AR management for your company.
Read Also: Top Features to Look for in Accounts Receivable Management Software
FAQs
1. What Is The 10 Rule With Regard to Accounts Receivable?
The 10 rule for receivables states that companies must collect no less than ten percent of outstanding receivable every month. This particular practice maintains good cash flow, decreases risk of bad debts, and also guarantees regular payments.
2. How to Optimize Accounts Receivable?
Automate invoice and transaction procedures, provide several payment options and also determine specific payment terms to simplify receivables. Monitor receivables regularly, send reminders for overdue invoices and increase interaction with clients to guarantee timely payments.
3. Which Technique Should A Company Use To Deal With Receivables?
A business can implement electronic payment and invoicing systems to accelerate collections, provide early payment discounts and monitor AR metrics like Days Sales Outstanding (DSO) frequently. Clear communication with clients and credit policies also assist with receivables management.
4. What’s The 80-20 Rule Of Accounts Receivable?
The 80-20 rule (Pareto Principle) implies that 20% of your clients usually pay you 80% of the money due to your business. Concentrating on these key clients can drive higher collections and improve overall AR efficiency.
