Accounts Receivable

We Help Your Business Manage Accounts Receivable so Collection is Effortless And Efficient

The main purpose of Accounts Receivable Management, is “MMM”

  • Maximises Cashflow
  • Minimises Cost
  • Maintain Good Client Relationships

Accounts receivable (AR): Responsible for collecting customer revenue, recording transactions, verifying payments, and resolving account discrepancies. It may be referred to as ‘Trade Debtors’. A trade debtor account controls the way a business knows how much money customers owe in the form of a ‘sales invoice’. It is the control account where your business may give a customer time to pay your bill.

Accounts Receivable Management: Systems and processes put in place to track your business; communications internal and external, sales invoicing, collections and credit policies.

All businesses need accounts receivable processes to function properly.

Accounts Receivable

How We Work With You

To get the MMM in your business we must be proactive in Accounts Receivable Management by regularly collecting revenue to improve cashflow and protect your business from slow paying customers who can negatively impact cashflow and lead to bad debt. Consistency with collections policy helps improve collectability and maintain customer relationships. 4 key steps to proactive accounts receivable management we will be assisting you with are:

1. collections/Credit pOLICY 

Your customers need to be clear on the value of the credit you are going to extend to them, how they need to pay you, how long they have to pay, what goods and or services you are going to supply them and who they need to contact encase of dispute. You must be upfront and have clear communication that both of you understand. While working with your customer check in with them to see that they are happy and document all evidence supporting this. While it is rare some customers make any excuse not to pay, eliminate this before you fully supply the goods and or services and to support legal claims should they arise. 

2. Promptly Send Invoices and Account Statements

Your customer needs to remember the purchase, know payment is due, and how much to pay you. Implementing software that you can email invoices and statements to, goes a long way in ensuring prompt payment.

3. Make it Easy for Your Customers to Pay You

The payment method depends on your business needs. Each methods below has its own cost and risk(s).

  • EFTPOS payments
  • Credit card and debit card payments
  • Direct debit payments
  • Online payments (such as Paypal)
  • Cash
  • Cheque
  • Money order payments
  • Gift cards and vouchers
  • Bitcoin and digital currencies

In selecting method(s) for your small business  we think about:

  • What method will make your customer more likely to pay on time?
  • Is your customer concerned about privacy? For example, credit cards automatically keep a record of the transactions. A customers might prefer to pay cash for certain goods or services, such as medication, for privacy reasons.
4. Slow Paying Accounts

We can regularly check reports for customers who do not pay on time. They may have disputed an invoice, discrepancies such as pricing error, discounts, wrongly supplied may need to be attended to so the customer pays. Phone calls, and written reminder letters help to receive quicker payment. We attempted to collect payment before turning to a third-party collections agency, and before writing off as a bad debt.

For more on Strategies for More Effective Collections of Aging Accounts Receivable by Dun & Bradstreet.

What You Need To Include On Your Sales Invoices To Meet Compliance Laws

For sales invoice’s less than $1000

  • Your Business Identity including your ABN
  • Invoice date
  • Invoice number
  • Description of what was sold
  • GST Collectable
  • If the sale is clearly identified as being fully taxable by the words ‘Total price includes GST’
  • Total Balance Outstanding Including GST
  • Purchase order numbers if requested
  • Other compliance criteria may comply depending on your Industry
  • This is not compliance but you NEED the method(s) of paying your business for the invoice!

GST status of your business

  • GST Registered Businesses must say Tax Invoice on the Invoice
  • Non-GST Registered Businesses DO NOT say Tax on their Invoice, the invoices is not a taxable supply and is to be excluded from Third Party BAS Statements.

You may want to include

  • Credit Terms (how many days they can take to pay the bill)
  • Fees for Late Payment

For invoices more than $1000

  • The buyer’s identity or ABN
  • GST Collectable per item line

When you are registered for GST and make a sale of more than $82.50 (including GST), customers registered for GST will need a Tax Invoice from you to claim the GST in the purchase price.

What Do Accounts Receivable Reports Keep Track Of?

  1. Who Owes Your Business
  2. What Amount Is Owed
  3. When It Is Due
  4. Used To Manage Your KPI’s

Accounts Receivable reports maybe in summary or detail showing you:

  • Customer Identity
  • Invoice Number(s)
  • Sale Date(s)
  • Amount Outstanding
  • Due Date or/and Days Over Due

What are Key Performance Indicators?

Key performance indicators, abbreviated KPI’s are specific measurable values that evaluate the success of a process.

Why Do I Need To Know My KPI’s for Accounts Receivable Management?

KPI’S simply help the business make improvements to optimise collections efficiency and maintain healthy cashflow.

Days Sales Outstanding DSO

DSO is the average number of days it takes to collect a payment. Often determined on a monthly, quarterly, or annual basis.

AIM: To keep your businesses DSO below 30 days.

Figures needed:

  1. A given period.
  2. Add up the total number of accounts receivable during the given period.
  3. The total value of credit sales during the given period.

Formula for Days Sales Outstanding:

DSO = (Total Number of Accounts Receivable/Total Credit Sales) x  Number of Days

Divide total number of accounts receivable during a given period by total value of credit sales during same period. Take the result and multiply it by number of days in period being measured.

Average Days Delinquent ADD

ADD is the average number of days the sales invoices are overdue/delinquent.         

AIM: To keep this number as low as possible. If rises occur it is time to check processes to ensure billing is going smoothly and enough time is spent on accounts receivable to accommodate collections.

Figures needed:

  1. Number of Days Sales are Outstanding
  2. Best possible number of Days Sales Outstanding

Formula for Average Days Delinquent:

ADD = Days Sales Outstanding – Best Possible Days Sales Outstanding.
Accounts Receivable Turnover ratio

This number shows you how quickly you are turning your sales invoices into cash and indicates your cash flow.

AIM: To keep this number low. A high ratio means you have a lot of accounts with uncollected revenue. A high ratio needs attention to see what is wrong, by looking at your billing and collections processes.

Figures needed:

  1. Net Credit Sales
  2. Average Accounts Receivable

Formula for Accounts Receivable Ratio:

Accounts Receivable Turnover Ratio = Net Credit Sales ÷ Average Accounts Receivable.
Collection Effectiveness Index CEI

The CEI number is a percentage calculation of a businesses ability to retrieve their payments from customers.

AIM: You want this to be as close to 100 as possible, this indicates you are collecting payment from all of your customers 100%

Figures needed:

  1. The amount of money you collected from your accounts receivable
  2. The amount that was available to collect

Formula for Collection Effectiveness Index:

CEI = (The amount collected/The amount available to collect) x 100

For where to find a bookkeeper and BAS Support: