How to create a watertight accounts receivable process
Accounts receivable is about getting paid for the work you do – in business, it doesn’t get much more important than that.
The process covers every part of the payment lifecycle – finding customers, communicating expectations, billing correctly and following up on late invoices.
Here’s how to build an effective accounts system in your small business:
- Pick the right clients – Before you take on new customers, run credit checks and have them sign written terms, including billing timeframes and late payment penalties. Some business owners even get clients to sign a personal guarantee, which gives them the option of suing for unpaid debt.
- Quick, effective invoicing – Always send invoices straight after work is completed, to get the payment ball rolling. Offer options like debit, credit or direct debit to make it as easy as possible. In some cases, you can send e-invoices directly to the client’s accounting or finance software. Having an online payment system can also be a great way to go – people don’t necessarily need to know their card details or go find their wallet when they receive the invoice. If they have an account with the payment system, paying is quick and easy: so your invoice gets paid faster!
- Consistent follow-ups – Keep a close eye on your unpaid invoices and check for payment frequently.
- If an unpaid invoice is past its due date, have a process to follow up – this could include email reminders, statements, phone calls and eventually debt collectors.
- Review your clients – If you have clients that frequently pay their invoices late, think about changing their terms – they may need to pay half upfront or use another payment method. In some cases, it might make sense to let them go.
Consistency is key
Having an accounts receivable plan is the first step – the next is following it, every time. From selecting clients to clear policies, prompt billing and thorough follow-ups, it’s all about consistency. That way, you won’t have unpaid bills and rogue clients slipping through the cracks.
Ready to create an effective payment process? Our expert accounting team can help.