Extending credit to customers leading to delay in payment, Accounting tools play a critical role in defining the Accounts Receivable Turnover Ratio, the number times a business collects its Average Accounts Receivable Annually. The vitality this particular process infuses to businesses operations is never comparable. Most of the businesses find it hard to increase their accounts receivable turnover ratio by the accomplishment of efficiency among accounting operations leading to smoother cash flow. This article is aimed at emphasizing an understanding best approaches that can enable businesses in achieving their desired accounts receivable turnovers. Rather than just calculating the rate at which businesses get pending payments, Accounts Receivable Turnover ratios assist in the determination of how well an organization can handle its credit policy & practices and customer debt management.
A higher Accounts Receivable Turn over is a clear indicator of:
Prompt Customer payment contributing cash flow
Quick pay off of debts avoiding bad debts
Effective collection methods
A negative Accounts Turn over ratos indicates:
Ineffective Collection Policies
Struggle for customers in making payments and drop in future purchases
Negative cash flow
Lienent credit Approval
Businesses must track accounts receivable for identifying opportunities for improvement of policies and bottom line. Management of accounts receivable helps businesses to track the management of turnovers and thus ensure cash flow heading in the right direction. OURS GLOBAL’s Accounts Receivable Services helps businesses to receive their payments in a limited specific time by improving collection rates and assure faster invoice processing that contributes towards the income.
Following are the Best Bets For Adding Value To Your Accounts Receivable Turnover:
1. Offering of Incentives
Incorporation of incentives as an effective strategy for maximizing accounts receivable turnover ratio will enable faster payment as customers are awarded incentives for the same. Such incentives don’t need to be over costly but small discounts, free shipping or delivery, and small gifts. Motivating customers for faster payments these incentives also increases the likelihood of customers paying, resulting in higher accounts receivable turnover, better cash flow, and a more efficient business.
2. Implementation of Result Oriented Cash Management Tools
Application of ideal application tools helps businesses in improving collections and better management of cash flow cycle. Among others, wholesale lockbox enables clients to special post office box keenly monitored by the bank making immediate collection and deposits. Automated clearing house eliminates “the check is in the mail” syndrome altogether.
3. Time-to-Time Review of Credit Terms
Businesses must cross-reference their credit terms from time to time for making appropriate changes. Studying customer nature, reduce or maintain payment terms two weeks or ten days. Larger and regular customers, who buy for selling efforts must be supported with the extension of longer terms. With awareness of clients having the ability to pay bills won’t need larger payment terms and it is best to collect from them with minimum payment terms. While reviewing customers for adjusting time frames in which they are obliged to pay for their invoices, the focus must also be given to quicker sending of invoices and monitoring the accounts turnover ratio on a side by side basis. Staying aware of the industry and the industry averages will also guide nature in how the particular ones collect payments. Clients who regularly fail with regularly paying late must not be entertained by offering credits again.
4. Proper Awareness of Turnover Ratio
All efforts and decisions on improvement and management of Accounts Turnover must be compiled from current insights and information. Incorporating Accounts Receivable Turnover ratios will guide how to quickly collect the total balance of accounts receivable in any given period. The addition of initial and final accounts receivable will give an average accounts receivable of a particular period per the net credit sales will give the ART ratio.
5. A/R Aging Reporting
Determination of the current payment status of all accounts receivable, by creating an aging report will enable tracking and measuring the payment status of all clients. Classifying every one of them into 0-30, 31-60, 61-90, and beyond 90 days since the invoice was issued will ensure identification of payment failures, much before they turn to significant past due. Such reports also support the AR department to focus on their collection efforts more efficiently.
6. Improved Payment Collections
Finalizing smoother payment collection approaches from owing clients will increase the ART ratio. Making clients in paying the taxes helps on-time payment. Implementation of lockbox service, pre-authorized checks, utilizing an automatic clearinghouse, or purchasing a cloud-based A/R management solution are the suitable option for the same. Lockbox functionality helps clients for payment from universal locations and pre-authorized checks enable regular drawing of customer payments from their respective payments. Transferring funds from clients to businesses electronically, automatic clearing house improves the digital platform reach of the brand. With a cloud-based accounts receivable solution, tracking all activities will be possible irrespective of location or time.
7. Quicker Turnover and Cash Flow
While struggling for being short on cash even with good sales, focusing on accounts receivable turnover will be much better. While selling products, prompt deliveries and payments must be ensured for an efficient and well-run accounts receivable flow. Generating invoices side by side with product delivery will ensure cash flows to be positive.
8. Automation and Streamlining of Payment Collection
In-house accounting professionals hassle too much with traditional payment collection techniques for preparation for calls and prioritization. Thus a considerable amount of time is lost for such activities other than soliciting customers for payment. By automation of such activities, businesses can ensure their professionals get more time into core business operations.
9. Time-to-Time Reminding of Clients
Effectively handling accounts receivable turnover requires being top of invoices from the very beginning. Sending payment notices after cutting invoices, before another notice a few days before the invoice is due can optimize the odds of faster payment. With the inevitable rise of higher on the list of invoices waiting to be paid, payment reminders can be a friendlier and helpful approach for clients.
Following all the steps that are mentioned above, businesses can optimize their accounts receivable turnover for efficient business operation and fruitfully enjoy faster payment. Businesses must realize the advantage of accounts receivable being automated, Automation of invoice generation and delivery help quicker delivery of invoices to the customer. Opting for the economical way of outsourcing Accounts Receivable operations requirements to OURS GLOBAL’s Accounts Receivable Outsourcing services help businesses with smoothened cash flow along with on-time payment from customers and easier channels. Ping us for drastic improvement of your accounts receivable turnover.