accounts receivable

Best Practice Accounts Receivable

We often get asked by clients, what’s the best practice for our accounts receivable or our debtors. Usually, that happens new staff are starting to assist in  managing their admin. Sometimes,they might just want to give it a shake up. It’s actually quite a simple process and the process should be the same. No matter what your business is.

The first thing is to make sure that you’re invoicing often and regularly and on time, as soon as something is sold. Or as soon as a job is completed, you want to make sure that you invoice. Ideally, have an electrical electronic accounting system such as Xero, invoice through Xero, send the invoice to your customer, so they can pay. Then you have to make it easy for them to pay you. Don’t forget to put your bank details on your invoice. You’d be surprised how many people actually don’t do it.

I really don’t understand why people don’t put their bank details on invoices, maybe they don’t do it because they’re scared of fraud. I don’t know. But you if I get an invoice and it’s got no details on it, I don’t pay it until they chase me. So, if you want to get paid, make sure it’s got your bank details. Thenlook at other ways of allowing them to pay maybe a Direct debit or setting up stripe or other Pay Pal or something else. It’s a payment gateway.

Once you’ve invoiced then you want to make sure that you’re checking they’re paying you on time. Make sure that in your terms of service, you have a due date, your invoices are due seven days after issue 14 days after issue, 30 days, end of month, whatever it is that you choose, but you should be one the one making that decision, not your customers.

Now, in some industries, particularly the big building and the mining industries, you don’t get a choice, it’s 15 days after end of month or something like that, or 30 days plus end of month you don’t get a choice. But for most small businesses, it’s your choice when invoices are paid. And on a regular basis. Someone in your accounts receivable team or your admin team, whatever you want to call them, needs to look at your computer system and pick up the phone. And they need to ring people when the invoice is overdue. “Hey, Bob, Victoria here from HBA encompass, I see that your accounting fees were due yesterday. Is there a problem with the invoice? No, that’s great. When do you think we can make payment on that? That’s awesome. I’ll put that in our system. Thank you so much.”

It’s not hard to make a nice phone call to people. You can follow it up by an email, typing out “Hi Bob, thanks for the time on the phone today just confirming that you said that you’ll have your bill paid tonight. We look forward to your payment. Thanks a lot, Victoria”

The trick is then you need to follow it up in a couple of days time. If Bob hasn’t paid you, you need to email him or ring him again. There are ways in the computerized systems to actually remind people to pay bills automatically. But one very important proviso on that you need to reconcile your bank accounts on a daily basis. Because if you don’t, the computer doesn’t know that Bob’s paid and will send him an automatic reminder. And if Bob’s paid, he might get a little bit cheesed off about that.

In Xero, there are five automatic payment reminders that you can do and you can choose the timing, you can choose the tone, you can choose what happens from there. The best practice that I’ve seen is:

  • usually a day or two before the bill is due to be paid: Hey, Bob, Just a friendly reminder our accounts due in two days. Look forward to payment on the day of payment.
  • On the due date: Hey, Bob, Just a friendly reminder, your accounting bill is due today.
  • Two days after the due date: Oops. Hey, Bob, seems you’ve missed this. Can we get some payment please.

Then as time goes on, the reminders can get nastier and nastier. It’s up to you how nasty you want to be. Ultimately, it’s up to you, whether you want to send them beforehand or what the timing is. But you do need to have automatic reminders and you need to have phone calls. And if you’re using XERO there’s an ability in there to actually put the expected payment date in the computer system.

If that expected date is available in your system, make sure that you use it, because if someone else is assisting with Debtors, we don’t want to annoy clients we made a “deal” with.

Best practice:

  • Invoice early.
  • Make it easy for people to pay you
  • Set up automatic reminders.
  • Make sure you phone quick people if payments are late
  • Have a process to follow on if payments aren’t received which could ultimately end up in debt collection

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