Managing Your Revenue Cycle: 6 Accounts Receivable Best Practices

It’s simple… run out of cash and your business fails. That is why good cash flow management is so imperative to the success of your company.

A common source of cash flow problems (especially for small and mid-size businesses) is poorly managed accounts receivable. The more cash you have tied up in receivables due to slow paying customers and delinquent accounts, the less cash you have available for running your business.

Furthermore, mismanaged revenue cycle accounting (e.g., delayed invoicing or failure to invoice the customer at all) will lead to cash flow disruption. This issue is typically compounded by incurring internal labor costs or external vendor fees for providing products or services to customers without having cash inflow to offset such costs.

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Accounts Receivable Best Practices

What can you do to ensure your revenue cycle is properly managed by your accounting team and cash inflows are maximized? For starters, follow these six accounting best practices for revenue cycle management:

#1 Provide Customers With an Estimate or Quote

Create an estimate that includes the specific products or services being sold, sales price, credit terms, etc. This will allow your customers to have an understanding of the required costs in advance, avoiding surprises when the invoice arrives and resulting in quicker approval.

#2 Confirm Invoices are Sent for Completed Sales Orders

Create a sales order from the approved estimate or from the customer’s purchase order. Management should review the Open Sales Order report to ensure visibility to services that have been provided or products that have been shipped for which no invoice has been prepared.

#3 Review Accounts Receivables Regularly

Proactively manage the receivable collections process immediately upon invoicing. Management should review the Receivable Aging report weekly to create accountability for the person responsible for collections. It is also important to establish a plan for following up with all delinquent, or almost delinquent, invoices.

#4 Offer a Variety of Payment Methods

Providing customers with the option to pay via ACH (automated clearing house) and credit cards can shorten the length of time from invoicing to customer payment compared to signing and mailing a physical check. In today’s world, electronic payments can be made from a mobile phone or device, making it even easier to approve payments.

#5 Input Customer Payments Immediately

Payments from customers should immediately be applied in the accounting records to the specific invoice. This process ensures that management has an up-to-date and accurate Receivable Aging report to review.

#6 Forecast Recurring Revenue

Businesses with customers who are charged monthly, quarterly, or annually for services should establish additional accounting procedures to forecast and schedule the future invoicing. Forecasting allows you to compare invoicing for these recurring charges against expectations to determine if there was a failure to issue invoices to any customers. If charges are identical each month, consider automating the process so that invoices are sent on the same day each month to avoid any unexpected delays.

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Signature Analytics can assist your business with implementing these revenue cycle accounting procedures and accounts receivable best practices to help you improve cash flow and strengthen the bottom line. Contact us today for a free consultation.

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