BEST PRACTICE IN ACOUNTS RECEIVABLE
What is best practice in accounts receivable? I believe the basics of best practice in accounts receivable are absolutely the same, irrespective of your business size or industry.
The manner in which your business operates, grants credit and deals with industry specific issues, may vary. However, the principles of dealing with your customers and outstanding invoices do not change.
The following best practice policy for accounts receivable operations is created under the following circumstances. Your Accounts Receivable will be operating as it does in most businesses, as a purely reactive set of operations, after the sale has been completed and the invoice sent.
There is one essential point to remember when we look at these best practice guidelines. Whilst the sale might have been processed, it is a sale in name only. Until the money is in your bank, there has been no sale.
My Best Practice Guidelines for Accounts Receivable
1 Any account not paid, requires some form of follow up within 3 working days of the payment being expected. Preferably, this contact should be by telephone.
2 Any customer enquiry about a copy of the customer's purchase order details, POD (proof of delivery), copy of an invoice, price or product issue - must be processed in full within 24 hours of receipt.
Occasionally, there may be a bigger issue or someone may not be available to provide a suitable answer. In these cases, the acknowledgement of the enquiry receipt must be sent to the customer within the 24 hours.
3 To obtain the details required to complete a customer enquiry, the accounts receivable employee must be able to obtain a copy of the following documents as quickly as possible.
These documents include the customer's order, a copy of the POD, a copy of the invoice, and a copy of any processed credit claim (or rejection of that claim). Preferably, these documents should be available without the employee leaving their desk.
4 A review to test numbers and type of all the issues which give the customer an excuse to slow pay or allow invoices to remain unpaid, must be conducted weekly, or at worst, monthly.
5 All issues not resolved within seven days and which prevents the customer authorising your invoice for payment, must be reviewed by a suitably qualified person with the seniority to resolve the issue.
6 All "special sale" details must be advised as soon as possible to accounts receivable employees. This allows accounts receivable employees to note the customer's file and make suitable notations before contacting the customer.
There must be no hint that the accounts receivable does not know what is going on witin the account.
7 Customer accounts must be reviewed six monthly or yearly at worst. These reviews allow you to ascertain if there are any hidden problems preventing timely payments, or to see if you can do better business.
These reviews must be conducted by salespeople and accounts receivable staff jointly to promote better understanding of each other's roles. This practice also presents a united front to the customer on how your business expects to be paid.
These seven best practice guidelines will help you be paid more quickly by removing the excuses customers use to slow down payments. In addition, problems of a similar nature are dealt with promptly as this pro-active campaign identifies those repeat problems occurring again and again.
Finally of course, a book sale becomes a real sale because you now have the money in the bank.
Oh incidentally, one final thought. If somebody within your business says your business can not afford to operate to these best practice guidelines, they are probably right. You probably cannot afford to operate to these guidelines because your business has not been paid.
May you be paid today rather than tomorrow.