Accounts Receivable Management

In challenging economic times the role of the Accounts Receivable staff takes on added importance. Accounts Receivable are an asset only when they can be collected. It is the job of Accounts Receivable management to establish credit policies which allow potential customers to afford to do business by reasonably extending the payment process. At the same time, thorough evaluation of potential customer’s balance sheets must be performed by Accounts Receivable staff to ascertain ability to repay in a timely fashion.

Accounts Receivable positions encompass a myriad of functions. They are responsible for determining credit worthiness, billing customers for sales made on credit, collecting funds, internal and external customer service, and working with outside organizations that may enter the collection process through bankruptcy or legal proceedings.

Accounts Receivable management must have a firm understanding of the degree of risk upper management is comfortable assuming. Funds tied up in accounts receivable are funds that could be put to work elsewhere in the organization. Policies need to be established to define credit terms for sales, possible incentives for early payments, and customer criteria for extending credit. Credit should be extended based on customers’ payment history and balance sheet strength.

A system must be in place to manage accounts receivable. This will allow for monitoring outstanding balances by invoice, by customer, and by age. A system can quickly highlight potential problem situations so they can be addressed expediently.

Management must decide when a phone call following up on an outstanding balance is no longer sufficient. At this point management must direct staff to apply pressure to collect overdue funds. Management must reassess the true payment potential of the customer in question to determine if credit terms should be renegotiated or if credit should no longer be extended. Accounts Receivable management is a fluid and evolving process.