Whether you're managing a growing accounts receivable department or you're an A/R department of one, it's important to measure the effectiveness of your efforts. Is your A/R team doing all of the right things to get paid consistently and on time? Read further to evaluate your department's effectiveness and considerations to get even better.
How effective is your business' accounts receivable department?
Measuring Your Efforts
The best way to know how you're doing is to look at the numbers. A few indicators will tell you right away how your A/R department is faring.
- What are the average number of days to get invoices paid? (Review our glossary term DSO.)
- What is the percentage of write offs for your business?
- What is your collections effectiveness index (CEI)?
- Are you aware of the payment histories of your customers?
- Do you regularly review your aging report?
Policies and Procedures
- Have you implemented a set of credit standards for your financing customers?
- Do you have a documented procedure and template for invoicing?
- Have you defined payment terms and consequences for late payment?
- Is there a process for following up with customers when their payment is past due?
An A/R department of one takes on all of the responsibilities of invoicing, customer service and collections. Still, it's advisable to document each of these roles for workplace absences/vacations, future hiring and growth in the department.
- Is there someone who reviews and establishes credit for your customers?
- Do you have well-trained customer service representatives who are knowledgeable about your customers' business needs, confident enough to contact them about payment and consistently collect payments on time?
- Is your accounts receivable manager adept at maintaining billing records, producing reports, negotiating payment arrangements and assisting with collections?
These sample templates and policies will help ensure your A/R department is not only effective, but cash flow superstars for your business. Use them to grow your department and reduce the likelihood of late payments and bad debt.