Top Accounts Receivable Mistakes to Avoid and Solutions for Fixing Them

Does your company waste time on invoice errors or collecting payments from customers? Is your business still using a manual accounts receivable process? These common accounts receivable mistakes can lead to financial losses and strained customer relations. Fortunately, these mistakes are easy to fix, so don’t let them cost your business.

We’ll discuss the top mistakes we see companies make regarding their accounts receivable and offer solutions to help you improve your processes.

1. Not Using an Automated Accounts Receivable System

One of the most common mistakes companies make with their accounts receivable process is using a manual process. Manual processes are slow and cause frequent errors. They take more time to follow up on payments and reconcile balances. They also increase the likelihood of typos or inputting incorrect information on an invoice. Another issue is that they are expensive to manage since completing tasks takes more time and resources. These issues can lead to frustrated customers and delays in cash flow.

Solution: Switching to an automated system can increase the speed it takes to complete accounts receivable tasks and reduce the number of errors made throughout the process. With an expedited process, your company can collect customer balances quicker and increase cash flow.

2. Inefficient Collection Process

Taking a long time to follow up on invoices or delays in correctly applying payments to customer accounts are signs of an inefficient accounts receivable collection process. These delays can cause problems with cash flow and financial planning. It is hard to properly manage expenses and plan for your company’s future if you do not have a real-time picture of your current accounts receivable balances. Additionally, you risk negative cash flow issues if you are slow to follow up on invoices.

Solution: Using an accounts receivable platform and establishing a standard collection process for employees to follow can help increase the speed at which your company collects payments and applies them to accounts. These enhancements will help improve your company’s cash flow and make it easier to make informed financial decisions for your business.

3. Not Having Clear and Firm Credit Terms

Another common mistake is not establishing payment terms with your customers. Your agreements and invoices should include clear terms that tell customers when you expect to receive payment and the consequences if they do not meet your terms. It can lead to strained customer relationships if it is unclear to customers how long they have to pay or if late fees are ambiguous or hidden. Customers appreciate transparency and specific terms to plan accordingly and avoid unintended consequences. Not having firm credit terms can also lead to cash flow issues and unexpected losses. If you do not specify when you expect to receive payment on an invoice, customers may forget or take their time repaying you.

Solution: Establishing clear credit terms and proactively communicating those terms to all customers can help increase payment collections and improve customer relationships.

4. Errors on Invoices

Printing incorrect information on an invoice, making a typo, or sending the wrong invoice to a customer are easy mistakes to avoid but happen all too often. These mistakes make your company look unprofessional and can cause frustration in customers. Invoice errors can also lead to unexpected financial losses if they go undetected. For example, if an invoice to a customer charges the wrong amount, your company could lose money.

Solution: Using accounting software and having an internal review process in place can help reduce the number of errors with invoices.

5. Delays in Sending Invoices

Delays in your accounts receivable process can hurt your cash flow and financial planning. Not promptly invoicing customers can lead to collection delays and losses. The more time it takes to send an invoice, the more time it takes to collect payment. This lag can lead to a domino effect of payment delays, putting your business behind on vendor payments and incurring late fees. Your company also increases the risk of bad debt if you wait too long to invoice and customers can no longer pay.

Solution: Set a clear invoicing schedule for your teams and look into automating your business’s process.

6. Limited Payment Options

Not all customers are alike. Some prefer to pay electronically or on an automated basis. Having limited payment options is an accounts receivable mistake that will cause issues with customer relationships. Companies should offer customers options for paying invoices, including different electronic options. They should also stay on top of emerging payment options like cryptocurrency payments. Companies should offer automated payment options to regular customers to make it easier and more convenient for them to pay.

Solution: Look into partnering with a payment processor that accepts a variety of payment methods. Your business could also offer subscription or automatic payment options to increase customer convenience.

7. Not Verifying Customers Before Approving Credit

Extending credit to customers without verifying if they can repay will lead to financial loss. Your company must check customers’ creditworthiness before offering them credit to avoid taking on bad debt. Also, your business can incur fines for not verifying customer identities if you are found to be doing business with a fraudulent customer. Both of these mistakes can also cause damage to your business’ reputation. If your company consistently does business with customers who default on their debt, your business may have trouble attracting investors or new customers.

Solution: Check customers’ credit reports or review their payment history before extending credit to them. Ensure you comply with the laws and regulations in your jurisdiction regarding verifying customer identities.

Closing Thoughts

Mistakes with your business will arise from time to time and are sometimes unavoidable. However, being aware of the potential mistakes you could be making, specifically regarding your accounts receivable process, and understanding how to correct them will lead to improved customer relationships, increased cash flows, and reduced risk of bad debt. The solutions offered in this article are a great start to improving your business’ accounts receivable process.

Sources:

5 Most Common Accounts Receivable Mistakes | Versapay

https://www.whizconsulting.net/uk/blog/accounts-receivable-mistakes-to-avoid/