Collection of accounts receivable: How to & tools to ease the process

In business, cash flow is the fuel that keeps the engine running. Managing the collection of accounts receivable is challenging. There’s the need to maintain healthy cash flow on one hand. On the other, you need to nurture relationships with customers. Nailing this process is crucial to unlocking business potential.

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What are accounts receivable collections?

In simple terms, accounts receivable collections refer to the process of collecting payments from customers that owe you money. This can include anything from overdue invoices and missed payment deadlines to long-term financing agreements or other credit arrangements with customers.

The process of accounts receivable collections often involves a variety of tasks. These can include things like:

  • creating regular payment reminders
  • establishing consistent communication with customers
  • tracking payments to actual debt collection

It’s important for any business owner to stay organized and up-to-date on the status of each customer’s account. This way, they can keep an accurate record of the money owed and develop effective collection strategies.

How to improve your accounts receivable collections

Below are some of the best practices and strategies for successfully collecting accounts receivable.

Use data effectively

Understanding your customers’ paying habits is crucial. By analyzing past transactions and payment patterns, you’ll be better equipped to predict collections and manage your cash flow. Keep track of your customer’s history and use it to your advantage.

The data can also be used to inform future collection attempts. Use predictive customer analytics to determine the best ways of collecting from customers who are behind on their payments and which payment method works best for each customer.

Research your cash flow history

A thorough analysis of your cash flow allows you to identify patterns and discover areas to improve. Look for trends in delayed payments, lost revenue, and slow periods. This can help you to refine your process and develop a more precise cash flow forecast.

These are some crucial things you should do when reviewing your cash flow:

  • Determine any seasonal fluctuations that could impact your cash flow. This helps you plan ahead and budget for any costs associated with slower times.
  • Identify opportunities to increase cash flow. See if there are ways you can shorten the time it takes for customers to pay (for example, offering a discount for early payments).
  • Pinpoint potential problem areas. Make sure to keep an eye out for irregular payment patterns or customers who tend to be late on payments.
  • Track changes in customer payment frequency or volume. When reviewing cash flow history, look for any changes in customer payment frequency or volume that may have occurred. This provides valuable insight into how to better manage future receivable collections.

Optimize your sales process

Your sales process should be optimized to maximize the amount of money that is collected and reduce the amount of time it takes to receive funds. To achieve this, consider using automated invoicing systems or integrating your sales process with a reliable payment processing service.

Optimization also involves looking for ways to reduce the number of steps it takes for customers to pay you. This could include having a seamless checkout process, offering various payment types, and giving discounts or special terms for paying upfront.

Systemize invoicing and payment

Implementing an organized system to issue invoices and receive payments is vital. Your customers should find it easy to understand their obligations, and your team members should be adept at monitoring and tracking those transactions.

Systemization can involve setting up a system of checklists and reminders for each step in the process. It also includes ensuring that:

  • invoices are issued promptly
  • payment options are available
  • payment conditions are clearly stated
  • follow-ups are done when necessary

Additionally, you should have a system in place to track credit risk and ensure that payments are received on time.

Optimize payment options

Offering multiple payment options encourages prompt payments. Providing options such as online transfers and electronic payments, like credit card payments and mobile wallets, can increase the likelihood of timely collections.

The best way to determine which payment options you should offer is to understand your customers’ preferences and the most popular payment methods in your region. Also, ensure that payments are secure by implementing industry-standard encryption measures.

Use an automated accounts receivable workflow management

Accounting automation software like QuickBooks, FreshBooks, or Xero not only simplifies the collection process for accounts receivable. It also frees up precious time for your team to focus on other aspects of your business. These software tools automate the entire accounts receivable collection process, from invoice issuing to payments.

Automating accounts receivable creates a streamlined, centralized system for managing customer invoices and payments. Invoice notifications are sent to customers automatically, so you don’t have to manually remind them. 

Offer clients flexible payment plans

Assess the needs of your clients and consider offering installment plans or other flexible payment options. This can help reduce the possibility of late payments and foster stronger client relationships.

However, remember that offering a flexible payment plan does not mean having lax collection policies. Establish a clear policy for when payments are expected and hold customers accountable to their obligations.

Align your team on AR collection

Create a dedicated accounts receivable team to oversee the collection process. Regular training and communication are essential to keep everyone on the same page and working together towards a common goal.

The AR collection process should also be regularly monitored and reviewed. Tracking KPIs such as average time to payment, percentage of on-time payments, and total outstanding receivables will help you identify areas for improvement.

Send reminders well before the due date

A gentle nudge or reminder can go a long way to ensure timely payments. Schedule automated reminders for clients about payments or invest time in sending personalized follow-up emails. You may also want to consider calling customers or offering incentives like discounts for early payments to help you receive funds on time.

Offer a good customer experience

A great customer experience can encourage stronger relationships and prompt payments. So, respond to inquiries and resolve disputes in a timely and professional manner. Implement automated payment reminders, such as emails and SMS messages, to reduce the number of overdue accounts. 

Providing great customer service will leave customers feeling valued and satisfied. This can go a long way toward helping you maintain your accounts receivable balance.

Have the right tools

Choose systems or software that meet your unique business requirements. Evaluate different options and find the best fit to enhance your efficiency in collecting receivables. Some of the best tools for the collection of accounts receivable include an automated invoicing and payment reminder system, cloud accounting software, and an accounts receivable management system.

Use a collections agency as a last resort

When all other efforts fail, consider partnering with a collection agency. While it may not be the ideal solution, it can help recoup some of your overdue payments and maintain your cash flow.


Your journey to mastering the collection of accounts receivable may be filled with trial and error, but if done right, it can result in healthy cash flow. 

Start today by developing a clear, written set of policies and procedures. Also, create effective communication strategies, implement the right tools and processes, and you’ll be on your way to successful collections.

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