Listed as an asset on financial statements such as the balance sheet, accounts receivable is an important resource to your business. It's considered an asset because it can be converted to cash if collected within the payment terms set in your client contracts. If it's not collected in a timely manner, it becomes a drain on company resources. Policies and procedures must be documented to increase the success of these collections.
Does your business use an accounts receivable policy?
What's defined in an Accounts Receivable Policy?
An A/R policy will define the procedures and responsibilities associated with the process of collecting what's owed to your business. A typical policy includes:
- The division of responsibilities defined in the accounts receivable departments
- Accounts receivable procedures (i.e., when and how to invoice)
- How to handle disputes or settlements with late-paying clients
- Goals and measurements for the effectiveness of A/R collections
When implemented, the accounts receivable policy will help increase cash flow to your business.
How Does an Accounts Receivable Policy Increase Cash Flow?
Consistency.
With a documented procedure and clear expectations, your accounts receivable departments work in concert to prompt early and timely payment. Or, if late payments become a problem, there are defined processes to bring client accounts current.
How to Write an Accounts Receivable Policy
Consider the policies that are already in place and define more from there. If your business invoices or runs aging reports on a certain day of the month, add that to the policy. If your business has credit standards or runs credit reports on your corporate clients, add that to the policy.
If you don't know where to start, download our Accounts Receivable Collections Policy Template by clicking the green button below. Let us know if you have any follow-up questions. We're here to help.
