How To Improve Accounts Receivable Turnover ?

Customers are frequently given credit by small business owners, who allow them to defer payment for services or items. Accounts receivable refers to money due by customers for goods or services that have already been given. As business managers strive to balance receivables against payments to suppliers and bills, improper collection management causes cash flow issues.

Accounts receivable turnover is a metric that measures how well your company converts its receivables into cash in the bank. This article will look at some methods of increasing your accounts receivable turnover.

Manage Your Clients Better

When it comes to accounts receivable, the first rule of thumb is to build solid client connections. Customers who are satisfied with your goods or services are more likely to pay for them. Tiny gestures, such as a nice phone or email check-in with your customers, can make a great impact when it comes to collecting payments on time, whether you’re a small business or a growing corporation.

Payment terms should be included

Include explicit payment terms on your invoices to set your accounts receivable up for success. Late fees are normally calculated as a percentage of the original invoice amount. If you sell higher-priced goods or services, it’s a good idea to set credit limits or provide payment plans.

Follow up on a regular basis

Making collections calls is a chore that no one enjoys. All the more incentive to use our advice to improve your accounts receivable turnover and eliminate the need for them altogether.

Make it a priority to always give precise, correct invoices and explicit payment terms upfront to streamline your collection process. However, mistakes do occur. And occasionally a missed payment is simply that – an honest oversight for which the client would be grateful for a courteous reminder.

Payouts that are efficient are rewarded

Customers should be rewarded for paying their bills on time. Rewards for paying on time include small discounts, free shipping or delivery, and bonus or gift products. Incentives such as point schemes and vouchers for future purchases are becoming more popular. Early payments are more likely with these strategies, resulting in higher accounts receivable turnover, improved cash flow, and a more efficient business

Invoice frequently, accurately, and on time

Your customers will find it easy to pay an accurate, complete bill. It’s critical that you bill on time and frequently.

Don’t wait until your consumers owe you a lot of money before sending them a bill. Customers are more likely to have mentally moved on if they are billed for services or items that were provided more than a month ago. Customers find it easier to pay smaller, more frequent invoices than one enormous quarterly invoice.

Improve Your Accounting Processes

Improve the efficiency of your collections. Use a lockbox service, pre-authorized checks, or an automatic clearinghouse to make it easy for consumers to pay on time. Customers can deposit payments in a lockbox or post office box in a convenient place for the bank to collect. Preauthorized checks allow a company to withdraw funds from a customer’s account at predetermined intervals. Automatic clearinghouses electronically transfer funds from clients’ accounts to the company’s account.

Make it simple to pay invoices

Customers will be more likely to use the accounts payable method that their accounting department likes if you offer numerous payment options. As a result, they will be far more likely to pay your bills on time.

However, the days of taking just checks or wire transfers for payment are long gone. Most businesses now accept EFTs (electronic funds transfers) as well as credit card payments.

Make your billing system easier to understand

By switching to fixed-fee billing, many service organizations have reduced their accounts receivable difficulties. When you sign a service contract with a consumer, you’re effectively offering the same monthly services at a set price every month. And that can help to alleviate the anxiety that typically arises when a client receives a higher-than-expected invoice.

Fixed-fee billing also makes it easy to use pre-authorized debit to withdraw money directly from your clients’ accounts on a monthly basis. As a result, fixed-fee billing strikes a good compromise between offering billing transparency to your consumers and guaranteeing that you get paid on time.

Increasing accounts receivable turnover allows firms to run more smoothly and efficiently. Divide annual credit sales by accounts receivable at the end of the year to get the ART ratio. Upflow is a service that provides advice on all aspects of accounts receivables including management, collection and more.