How to make your accounts receivable control

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What is Accounts Receivable Control

If we were to give a simple and objective definition for the control of accounts receivable would be the monitoring of the revenues that the company has to receive from its customers who made purchases with payment in installments or future maturity.

In a simple look you may think that accounts receivable is a mere formality of large companies, but if you look with a little more attention to the finances of your business, you will realize that even small businesses can have high default levels harming the cash flow. So I believe that a good control of your receipts can generate the following benefits for your business:

  • Knowledge of paying customers
  • Analysis of receivables
  • Comparison with accounts payable (to understand cash need for future months)
  • Better billing schedule
  • Help with controlling cash flow

Now if you are wondering the step by step how to make a good control of accounts receivable just keep reading the post:

How to track accounts receivable

This process can vary from business to business depending on the type of system or accounts receivable worksheet used, but in general, I believe there are 4 essential steps in any company:

  • Step 1 - Record the types of accounts you can receive

This is the initial step of any minimally decent financial control. Here you will make a record of the receivables accounts that exist in your business. Typically, the most important accounts are related to the sale of products or services:

  • Step 2 - Record the accounts receivable on unpaid or future-paid sales

With the receipts chart of accounts ready, you can now begin to record the accounts receivable from sales that have not been paid or scheduled for future payment. That is, for any forward sale held, you can register a number of items that will give you essential control information:

  • Due date of receipt
  • Receipt date
  • Chart of accounts related to receipt
  • Original value
  • Final value (with interest, fine, etc.)
  • Payment status

See an example of completing these fields in our accounts receivable worksheet for a future month (that is, you had no payment received in fact, just planned):

A good tool will show you some data automatically, the most important in my opinion, is the payment status, which allows you to control who has not paid and make the necessary charges when necessary.

  • Step 3 - Track receipts from month to month

Now that you've left all of the accounts receivable postings recorded, you need to track the day of receipt. Usually this practice is done in conjunction with bank statement and proof of payments sent by clients.

In this case, almost half of the customers did not make the payment due, which is a big problem for the company's account receivable control officer. Obviously in different realities you may have different standards and must understand exactly how your market or business function to draw conclusions from these data.

  • Step 4 - Analyze your accounts receivable control

To close, our last step is about possible reviews of looking at a consolidated result every month. Below I compiled from January to April:

We could quickly have some insight into this business:

  • Number of accounts receivable is falling gradually - important to understand if this is a sales problem or if we are having more customers paying for the view (which would be very good)
  • In January we had a much greater amount of payment delays than the average of other months - perhaps the person in charge forgot to charge our debtors
  • The amount of outstanding accounts receivable in February was very large (44% of delay) - it would be necessary to see who made these sales and under what conditions, finally, to investigate this large delinquency

These are the main analyzes, but we could still do more detailed product or customer reviews based on the completion of your accounts receivable control information.

Best practices for good accounts receivable control

And now, if you already have control of your receivables, you may like these best practices that can help you on a day-to-day basis:

  • Collect (remember) payments on a daily basis
  • Copper fine or interest due on arrears
  • Offer benefits or discounts on prepayments
  • Be careful about using tickets excessively
  • Pay attention to your installment policy (mainly for installment tickets)
  • Keep track of your default indicator monthly
  • Use a tool for this control (point out our accounts receivable worksheet)

If you want other suggestions of what to do, check out this post 5 Essential Tips for Tracking Your Accounts Receivable.

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