In the early days building a process can be a lot of trial and error. If you are later in your business you may have grown so fast you had trouble building processes or eventually found the old process you had didn’t work as you scale! No matter your situation, a good process helps create efficient flows that stop bottlenecks and silly mistakes.
While every part of your business is important in its own right, accounts receivable can be especially important. This account is responsible for much of your cash flow, sales, and ultimately stability. Neglect your accounts receivable and who knows how much is actually owed to you.
Let’s go step by step in making sure your Accounts Receivable process is up to date!
Write Out Your Payment Terms
Before you get into what software you will use or how to identify a late invoice, you first need to set your own rules for if an invoice is even late! How early do you send your invoices? How often do you invoice? What is going to happen if someone pays late? Or doesn’t even pay!?
Establish a Bookkeeping & Invoicing Software
Your bookkeeping and invoicing system are going to work hand in hand on making sure all of your accounts receivable are accounted for. This is not one size fits all and should really be based on the type of business you have.
In regards to bookkeeping software, some popular options include:
- Quickbooks Online
With invoicing software there are some popular options but you will want to know what those in your industry are using. For example, Square may be a popular option for vendors that sell goods at markets or on the go. Stripe is also a popular option for many service industries. Do a bit of research to understand the unique needs of your business.
Some bookkeeping software includes invoicing software, like Quickbooks. However, this option may not always be best based on the needs of your business.
Sync Bookkeeping & Invoicing Software
As you are researching bookkeeping and invoicing software, consider what programs can be integrated. This is important in making sure you are being properly alerted if an invoice has not been paid.
If you plan on using Quickbooks and you are wondering what AR software is available for integration, check out their database here. If you plan on using Xero, you can find their list of AR software available for integration here.
Once you have built up your books and picked out your invoicing software, sync them so there is communication between the two programs. It is important to confirm this is a good connection and the programs communicate both ways.
As accountants, this is often the main issue we see. Your invoicing system may communicate to your bookkeeping software, but the bookkeeping software may not communicate back. This can create issues if the information does not continuously flow in one direction.
For example, if your bookkeeping software does not communicate with your invoicing software and you receive a check for payment, you may mark it paid in Quickbooks, but that information is not communicated to your invoicing software so it continues to show up as unpaid.
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Create Alerts in Your Invoicing Software
Now that you have your payment terms, bookkeeping software, invoicing management, and it is all synced, create alerts for late payments. These alerts can be sent to you as the owner of the business, but you can also consider sending it to someone in your finance or administrative department. That way when you are notified of a late payment, the appropriate person can make sure there are no issues with the client.
Reconcile Accounts Regularly
This is ideally going to be the most important part of the process. This is where you get to tie up loose ends and make sure all invoices are accounted for.
Within your bookkeeping software, you can pull an accounts receivable report that will show you what is not yet due and overdue. Compare the totals with what is reported in your invoicing software. If there are differences, it is important to dig into the numbers to understand why there is a difference. Continue to iron out the discrepancies until you have two reports from each system that agree.
We understand this is just one part of your finances that may require a lot of attention. However, keeping on top of your accounting tasks can prevent a long list of problems like fraud, IRS fees due to error, unaccounted for invoices, and so much more.
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