4 Mistakes to Avoid in Account Receivable Management

Managing accounts receivable is significant for any business since everyday business operations depend on it. Whether you are doing it for own business or as part of account receivable outsourcing service, you need a constant flow of cash. Many firms, however, struggle to handle the receivables and end up with huge losses. Here are some of the mistakes that are commonly made with receivables and should be avoided at all costs.

Mistake #1 - Not taking Account Receivables Seriously

One of the biggest mistakes most organizations make is not taking account receivables management seriously enough. Whether you are a small business or a large corporate, if you don’t focus on your cash flows, you are going in losses sooner than you think. Keeping tabs on your cash flow, forecasts and timely collection is necessary to meet your financial obligations.

Solution: Managing receivables involves an overwhelming amount of work from invoicing, billing to tracking payments. If you are a small business and are unable to manage receivables on your own, you can go for AR outsourcing services.

Mistake #2 - Taking Unnecessary Credit Risk

Another common mistake that companies make is taking unnecessary credit risk. This means not doing research on your customers before extending them credit.

Solution: Extending credit to every other client who asks for it isn’t a safe practice. You must ask your customers to fill out a credit application and review their credit reports before you decide.

Mistake #3 - Ignoring Credit Limits

Many a time, over-eager salesmen go out of their way to offer credit to customer’s way above the credit limit. This ties all of your assets in receivables and chokes your cash flow ultimately causing working capital issues for the business.

Solution: Establish standard procedures for employees when dealing with credit. Having a document with clear-cut instructions to employees on where to extend credit can be helpful to avoid confusion.

Mistake #4 - Inefficient Data Management

Business organizations are still using manual systems for invoicing. This leads to inaccuracies in bills, invoices and there is also increased the risk of problematic delays for payments. Without access to right data, a company may not know its outstanding debt.

Solution: You should streamline invoice processing to monitor pending payments every month and keep track of late payments and bad debts. Using Account Receivables Outsourcing or software is another great solution.