11.09.2023 | Posted by Erik
Dial in Your AR and Improve Cash Flow for Next Year
As December looms, it’s a critical time for accounts receivable (AR) professionals to get their house in top shape ahead of the new year. With an uncertain holiday retail season underway and many business leaders on edge in the face of tightened consumer spending, this heightened sense of risk will require extra diligence for collecting on unpaid invoices.
It’s advisable to act now to safeguard your cash flow and ensure you’re first in line to collect come January. Let’s dive into five practical strategies we recommend as an accounts receivable management services provider, to mitigate risk and enter the new year with a strong financial footing.
1. Start Early to Keep Cash Flowing
The race to close the books starts well before Thanksgiving. Aim to tackle outstanding balances as early as you can. Mailing invoices ahead of the December rush can make a significant difference. Remember, you’re not the only business eyeing a clean slate; your debtors are likely keen to clear their accounts payable (AP) in the current fiscal year too. Take advantage of this collective end-of-year mindset to improve your payment prospects.
2. Invoice with Foresight
For many businesses, the fiscal year aligns with the calendar year, creating a strategic window. Incentivize clients to settle invoices in December to align with their tax planning. Timely invoicing is crucial – don’t wait until the last minute. November becomes a pivotal month for clearing as many balances as possible, particularly if you’re hedging against an unpredictable retail season.
3. Communicate Proactively
Direct contact with clients before December can significantly aid your collection efforts. Keep in mind that more people are out of the office during the holiday season, which often causes payment approvals to slow down. Here are some strategies to try:
- When normal A/P contacts are out, find out who their “backup” colleague is and add their contact info. to your files. If you even run into difficulty collecting at a later time, having more contacts can be helpful.
- Proactively reach out to your biggest accounts to get ahead of any issues and ensure your AR doesn’t languish unpaid.
- Stay responsive and be prompt with follow-ups to encourage quicker payments.
4. Clean House: Write-Offs and Bad Debt
For accounting hygiene, it’s important to know when to accept that certain outstanding debts won’t be paid. The end of the year is the appropriate time to assess and clear out bad debt from your books. This might seem disheartening, but it’s a vital step towards a fresh financial start in the new year.
5. Make Holistic Process Improvements
January offers a fresh perspective from which to evaluate your AR processes. Together with your team, ask the hard questions like:
- Are there ongoing invoicing issues that need to be addressed?
- What about dispute resolution processes – can they be streamlined?
- Is there a way to make the billing process more efficient?
One area we’ve found where businesses often struggle is their process for collecting past dues. If your company policy for handling past dues isn’t dialed in, this can lead to invoices going unpaid for longer. A robust process will detail:
- How many days you’ll let an invoice go past due before you reach out
- The order of communications for past-due outreach: for example, first email, second email, then phone call
- How many days to allow between each contact
- Email templates and phone scripts for team members to follow each time there is outreach.
With payments slowing down this time of year, take advantage of the extra time to focus on identifying and implementing improvements to your AR processes.
End-of-Year Considerations for Accounts Receivable Management Services
AR isn’t just about collecting on payments; it’s an integral component of your company’s financial health. The efforts you make now will set the pace for the coming year. By fine-tuning your approach to AR now, you’re taking an important step toward success in 2024 and beyond.
If you’re looking for an outsourced partner to support your AR needs, Axim’s accounts receivable management services can help. Contact us to learn more.