Accounts Receivable Management

Accounts Receivables Management is a financial process that helps companies to manage, track, process and collect all accounts receivables.

accounts-receivable-management

Accounts Receivables Management (ARM) is a financial process that helps companies to manage, track, process and collect all accounts receivables. The objective is to convert receivables into cash as quickly and effectively as possible.

The ARM processes of a company usually include:

  • Customer risk assessment and credit extension processes
  • Sales documentation - accurate, complete & timely invoicing
  • Focused follow up with the customers or branch or sales (account) managers to realize sales proceeds within the due dates
  • Correct application of receipts, ledger a/c & TDS reconciliations

Why is accounts receivables management important

Accounts receivables represent the single most important source of cash for all organizations offering trade credit; and cash we know is the lifeblood of an organization.

Naturally then a strong, well-organized ARM function becomes a critical function for companies. Not only does it facilitate quick and effective collections, it yields many other benefits to a company. Together these benefits translate into superior organizational value.

Poor ARM, on the other hand, exposes a company to great financial risk. Risk in terms of bad debts, cost of money, administration and follow up costs. Often these costs are disguised. Check, you might be suffering from them too?

Given these facts you would presume that most companies would have a good ARM system in place. Not really. Effective ARM represents a very difficult challenge, a challenge most companies are unable to meet.

Accounts Receivables Management – a difficult challenge

ARM poses a difficult challenge for companies on many counts.

The ARM process has to:
  • Balance conflicting priorities- sales v/s bad debts, cash generation v/s charge offs, profitability v/s market shares, credit sales v/s risk tolerance etc.
  • Handle the consequence of practices and processes of other departments- If a customer is dissatisfied with a product/service he might not be willing to pay for it.
  • Operate at near 100% efficiency levels- companies expect to recover near 100% of their accounts receivables, 90% within 10-90 days of the due date, and that too at a very nominal cost.

To meet the ARM challenge effectively companies need to invest time, talent, infrastructure and technology. However, it isn’t easy to spare these resources; which is probably why “inefficiencies in own process” account for 70% of AR delays in a typical company.

Hiring an ARM specialist makes maximum sense in such a scenario.

Common Accounts Receivables Management errors

It would be wonderful if everyone simply paid their invoices immediately. However, in business, you need to diligently collect and follow up on accounts. Below are some of the common mistakes that can slow down and hinder the process.

  • Making payment application errors
  • Not sending invoices promptly
  • Not having a standard policy
  • Not having thorough follow up
  • Not updating your database regularly
  • Failing to address problems early on
  • Accepting the run-around by customer
  • Not increasing the level of your collection attempts

Why outsourcing ARM is better over an internal accounts receivables department

Our concentrated focus, innovative approach and comprehensive delivery model provides us several advantages over internal departments.

Areas KGMC Internal departments
Cost of AR Variable and lower Fixed and increasing
AR Efficiency Result oriented Undefined
AR follow up Proactive Reactive
AR Process & Reporting Defined Random
Account Reconciliations For every client Ad- hoc basis
Relationship Management Continuous Personal
Dispute Resolutions Defined process Variable
Focus Core focus Changes with competitive environment

KGMC Receivables Management services

Pre-Invoicing Services:

  • Understanding the company’s Policies and Standards: In this phase the our team will understand the company’s policies and billing standards, we will also review if the policies also differ from client to client depending upon the amount of business of the customer (Priority accounts).
  • Customer risk assessment: Since the selling and collecting activity should go hand in hand customer risk assessment is very crucial function. Our team assists you to analyse the credibility of the client before the client is on-boarded
  • Concurrent audit of sales invoices: Separately we also undertake concurrent audit of sale invoices prior to dispatch to customers.

Post invoicing Services

  • Invoice acknowledgement: Out team will receive the acknowledgement of the invoices that have been sent and the invoices for which disputes were handled have been re-sent.
  • Collection strategy formulation: this phase will include the collection strategy and mechanism to collect the invoicing amount before the due date.
  • Collection process: In this process the entire follow up and escalation process ( follow up calls / reminder mails) will be streamlined for the attainment of the invoicing amount within due date.
  • Dispute management: This process will include the strategies of how to resolve the dispute if any until the final customer satisfaction is attained.
  • Plan for overdue collection: This phase will identify
    • Problems in terms of value, number and age, draw up guidelines on the use of different techniques
    • Monitor results on weekly basis giving more importance for reduction of debtors over 1 year.
    • This will also include the accounts which can not be collected because of sales & service queries.
    • Focus on delinquent customers
  • Balance confirmation: This phase will include balance confirmation from client in a predetermined format & predetermined frequency. We can conduct this activity as a independent activity also.
  • Reporting & analysis: Provide reports and analysis of debtors/aging reports & collection reports.

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