Streamlining your accounts receivable process with HighRadius’ Autonomous Receivable solution to improve your order-to-cash cycle.
The finance function is made up of several different teams – treasury, accounting, accounts receivables, accounts payables, budgeting, financial planning & analysis, etc.
While all these teams play crucial roles, the accounts payable and accounts receivable departments are key to managing cash flow and working capital. The accounts receivable (AR) team is responsible for all cash inflows. They manage invoicing, payment collections, cash application, deductions, and credit risk.
The accounts receivable team, is therefore, critical to ensure that your sales revenue translates into cash in your bank account. In this article, we’ll dive deeper to understand the intricacies of a modern AR department and how it functions.
A business’s accounts receivable is the amount that clients owe them. The accounts receivable department within an organization is tasked with ensuring that all payments due to the business are received on time and processed promptly.
The traditional approach to accounts receivable has been to manually create invoices from accounting software or Excel spreadsheets. Later, these bills were printed and mailed, but more recently they may have been sent by email or other electronic means. A modern approach to accounts receivable uses the output of an ERP system or accounting software through a billing platform to automate the delivery of invoices. This platform can send invoices by email or any other electronic delivery method such as EDI and XML.
Accounts receivable departments also extend trade credit to customers, keep records of customers owing money to the business, enable collections, and post cash. Additionally, they may reconcile customer accounts and prepare aging reports to determine which customers are behind in making payments. They also use data to predict which customers are likely to default on payments and help build cash flow forecast models.
The department is an integral part of any business or organization. With the appropriate structure in place, everyone within the department would have a fixed set of roles and responsibilities. In smaller companies, all the functions can be handled by one person but for a larger business a typical AR Department can be structured around the following functions.
The various functions that an accounts receivable department performs include:
It involves verification of receipts, reconciling bank accounts, etc. to prepare monthly statements that provide a concise overview of the business’s cash flow.
These are the activities performed by an accountant at the end of an accounting period to ensure that the account balances in the general ledger are complete and correct.
An invoice is a document presented to a customer as a proof of goods or services delivered. In some cases, the customer might pay for the items at the time of delivery, while in many cases the payment would need to be made only at a later date. The AR team tallies the invoice amounts and adds them to the balance sheet as sales revenue, cash, or accounts receivable.
A billing system is a process by which a company bills its customers. It includes the electronic invoice templates, recurring invoicing workflows, the payment software that automates the process of collecting payments, and the mechanisms to track expenses and bills.
Accounts receivable goals include reducing the average collection period, increasing the percentage of accounts paid on time, reducing the number of past-due accounts, improving the accuracy and completeness of billing and collections data, and streamlining the collections process.
We look at these goals in detail in this section.
The primary objective of AR management is to minimize day sales outstanding and processing costs while maintaining good customer relations.
The AR team is responsible for ensuring minimum bad debt by optimizing credit risk and collecting overdue invoices at the earliest.
The AR department sends buyers invoices for the goods or services they’ve ordered. The invoices include details such as the cost of the products purchased or services rendered to the buyer, tax computations, delivery date, etc.
Responsibilities here include obtaining customer and financial information from sales departments, contacting customers by phone or email, and determining appropriate schedules for repaying debts.
Modernizing your accounts receivable department to improve efficiency and productivity is crucial to provide a superior customer experience and maintain strong working capital levels. Here are some ways you can streamline your accounts receivable department.
While most companies continue to rely on paper checks for transactions, there is a definite trend toward increasing adoption of e-payment options for B2B transactions. Offering online payment options such as ACH, wire transfers, and debit and credit cards is key to providing a positive customer experience as well as modernizing AR departments. Incorporating checks and paper invoices into electronic workflows, in fact, makes your digital transformation efforts redundant.
Streamlining accounts receivable processes often begins with the invoice. An invoice is a document sent to a customer to describe the products or services purchased by them, the cost of those products or services, and when the payment is due. Each invoice is uniquely numbered so the AR department can match receipts and payments to the right customer. Adopting electronic invoicing improves trackability and data management.
A good way to optimize the process is to document standard operating procedures, also known as SOPs. This approach reduces billing errors and streamlines the onboarding process for new hires in the accounts receivable department.
A great way to encourage customers to pay early is to offer a discount. For instance, if the customer pays the invoice 14 days before the due date, a 2% discount on the final invoice can be given. You can also take the opposite approach and charge late fees on delayed payments. Do mention these terms and conditions clearly in the payment guidelines and the invoice.
This important step in the AR cycle is typically performed by an accounts receivable representative (ARO). The ARO’s primary role is to track all payments and notify customers that payments have been received. Large companies avoid this cumbersome process by using automated systems to monitor all billing & invoicing activities.
While the functions of an accounts receivable department look straight-forward, there are many intricacies and challenges involved, including customers turning rogue or bankrupt, cash records not matching, and customer credit risk scores plummeting overnight.
Streamlining your accounts receivable function is critical to manage everyday business operations. Automation can prove to be your best bet here.
According to a survey we did earlier in the year, almost one-third of the mid-sized businesses in the US are planning to automate invoicing, collections, and cash application. Almost half of the businesses have already automated their invoicing function.
With HighRadius’ Autonomous Receivables solution, businesses can significantly improve their order-to-cash cycle. HighRadius offers credit and collection solutions that will allow your business to track credit risk in real time and enable up to 75% faster AR recovery.
Our solution also provides a prioritized to-do list so collectors can easily target at-risk customers. It also uses real-time data to provide insights and reports on the next steps to take on each customer account to maximize cash collection.
Accounts receivable departments play a critical role in processing invoices, keeping track of payments, and safeguarding income by confirming and publishing receipts.
Yes, accounts receivable is a part of the finance department. The accounts receivable team within the finance department is responsible for managing invoicing, payment collections, and credit risk.
An accountant or accounts receivable clerk ensures that the business receives payment for the services they provide or the products they sell to customers. They track invoices, match payments, send reminders to customers, and record financial transactions to an accounting system.
Automate invoicing, collections, deduction, and credit risk management with our AI-powered AR suite and experience enhanced cash flow and lower DSO & bad debtTalk to our experts