2. Avoid unnecessary administrative errors

Filing is as simple as it is difficult. Although data automation is prevalent, there is a constant need for human intervention that constitutes human errors. One mistake can be the reason for multiple outstanding receivables across several accounts. When this gets worse, you can have as many outstanding receivables due to administrative errors as those caused by customers' payment practices. While you cannot always control the latter, the former is entirely on your hands. The following are two areas where you want to correct any inaccuracies and make certain that all the i's are dotted and all the t's are crossed.

Customer master data

The efficiency of your accounts receivable management depends largely on how accurate your customer master data is. There are many occasions where changes to accounts are not faithfully reflected in the system. If the correctness of your customers' credit limits, payment terms, contact details, and the likes is questionable, it is counterproductive to rely on such information. Sending out invoices containing wrong names or addresses, or collecting accounts receivable based on incorrect payment terms would not only negatively affect your days sales outstanding (DSO), but also cost you valuable time and resources to find, acknowledge, and rectify the errors. Access controls are necessary to avert unauthorised edits to your customer master data. There should be a limited amount of staff tasked with managing the data and signing off on any proposed changes, because they could impact financial forecasts and reports considerably. Periodic audits of your customer master data can help ascertain where errors occur the most, as well as uncover incongruity in your customers' credit limits, payment terms, or discounts that could be fed back into your accounts receivable policies.

Invoicing and billing

What starts out as a straightforward process often turns out to be one of the major headaches of accounts receivable management in many technology companies. In order to minimise mistakes made in the invoicing and billing process, you need to ensure accuracy and timeliness at each of its steps, namely issuing correct invoices, sending out said invoices and applying their payments accordingly. Just like with your customer master data, it is crucial to make each of your invoices error-free. Getting details like pricing or quantity wrong would likely lead to disputes instead of payments. Payment terms and other relevant information from your customer master data should be reflected accurately on the invoices as well. Having an invoice that contains all the required information correctly put together is already half the battle of preventing it from becoming outstanding.

An invoicing schedule helps keep you on track to receive payments promptly. There are various ways to schedule your invoicing. You can send out the invoices as soon as the orders are fulfilled. You can establish a regular schedule, such as the twentieth of every month. Or you can match your invoicing with your customers' accounts payable. If a customer only pays invoices on the first of each month, you would want to invoice them before that date to lower your DSO. Once you have worked out an invoicing schedule, it is important to stick to it while leaving enough room for adjustment if necessary. Although this might not be the case for most technology companies, there are instances where companies use a combination of paper invoices and electronic invoices. This could cause disorganisation and generally slow down your accounts receivable process. If circumstances allow, switching from paper invoices over to electronic invoices would speed up your invoicing and billing process significantly with fewer errors. An additional advantage of electronic invoices is that you have proof of the sent invoices if your customers argue that they have not received them.

It is pointless to collect outstanding accounts receivable when you are not sure which accounts are outstanding. This could happen if incoming payments are put off until later. It is easy to lose track of which accounts or which invoices the payments are for, especially when there is not enough information to identify payments made using multiple payment methods. It would cost you much time and resources not only to sort the payments out, but also to rectify any erroneous cash application that cannot be undone.

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