Establishing and adhering to an accounts receivable policy is crucial to the financial well-being of any business, regardless of size. Managing accounts receivable plays a vital role in maintaining healthy cash flow and minimising bad debts. While establishing an accounts receivable policy may not seem like the most exciting aspect of business, it can have a big impact on financial success. In this blog, we will discuss the best practices for creating and maintaining an effective debtor policy.
Analyse creditworthiness of customers
It all starts with a thorough analysis of potential customers ‘ creditworthiness before accepting them as customers. Credit information exists to assess creditworthiness. Creditworthiness is determined by checking credit reports and payment history. This helps to minimise the risk of default and to determine which customers are and are not eligible for credit.
Clear and fair payment terms
It is vital to set clear and fair payment terms and communicate them to your customers. Avoid unclear language and make sure all parties involved understand the terms. This includes payment terms, possible discounts for early payments and penalties for late payments.
Automate invoicing and payments
Using modern technologies, you can automate the billing and payment process, reducing the chance of human error and allowing payments to be processed faster. CreditDevice’s Credit Management Software provides automations in your accounts receivable management. The automation within the software handles sending reminders for overdue payments in the right tone of voice and makes it easier for customers to pay on time.
Prioritise customer relationships
While it is important to maintain strict payment terms, customer satisfaction should always remain a priority. Communicate openly and kindly with customers about their payments and seek solutions if they are struggling to pay. Building positive customer relationships can help prevent conflicts and promote better payment discipline.
Set up a collection procedure
In case a customer is consistently in arrears with payments, it is best to establish a clear collection procedure. This procedure should clearly state what steps will be taken and within what timeframe. Be consistent and follow this procedure closely to ensure that customers understand the consequences of non-payment.
Monitor and analyse performance
Regular monitoring and analysis of receivables management are essential to evaluate the effectiveness of your policy. Keep track of important statistics, such as the average payment period, the percentage of overdue payments and the percentage of bad debts. Use this data to continuously improve and adjust your accounts receivable policy.
Conclusion
Establishing and adhering to an effective accounts receivable policy is a crucial factor for a company’s financial success and stability. By analysing customers’ creditworthiness, setting clear payment terms, embracing automation, fostering customer relationships, having a collection procedure and monitoring regularly, you can minimise the risk of default and maintain a healthy cash flow. Keep in mind that maintaining a formal, yet appropriate tone of voice can help customers stay motivated to pay on time. Accounts receivable policy can play a key role in building strong customer relationships and a successful business in the long run.
