Tips and best practices for efficient accounts receivable management

As an entrepreneur or finance manager, well-organised accounting is important. It not only helps you meet your legal obligations, but also contributes to a sound financial basis for your business. An important part of this is accounts receivable. This process provides insight into your customers' outstanding invoices and helps you receive payments on time. 
In this blog, you will read what accounts receivable administration entails, why it is important, and how it differs from accounts payable. We share practical tips and show you how our tools support you in streamlining your financial processes. 

The difference between debtors and creditors

For a proper understanding of accounts receivable, it is important to understand the difference between debtors and creditors clear. What does debtor mean and what is the definition of a creditor? You can read it below. 
Debtors meaning: These are customers who have yet to pay you for goods or services rendered. An example: if you send an invoice for a website you created, the customer is your debtor until the invoice is paid. In legal terms, a debtor is a debtor. If the debtor pays, then the debt is paid. Debtors are on the balance sheet on the asset side, they represent the money you will still get and therefore belong to your assets.  
Creditors meaning: These are parties to whom you owe money, for example suppliers. If you receive an invoice for a purchase that is yet to be paid, the supplier is your creditor. In legal terms, a creditor is a creditor. Creditors appear on the balance sheet on the liabilities side, under debts. Read more about how to properly record your accounts payable furnishing. 

What is accounts receivable?

Accounts receivable meaning: The accounts receivable department is keeping track of all the outstanding invoices your customers still have to pay. In your accounts receivable department, you can see exactly who your debtors are, how much money they still have to pay, and when the payment period expires.  

The purpose of good accounts receivable is to ensure that you get paid on time and have insight into your company's cash flow. This gives more control over your income, which in turn helps you plan your expenses. With clear records, you will also know when to send payment reminders. 

Tips for efficient accounts receivable:

• Use a professional accounting programme to keep track of all your invoices and payments. 

• Work with automatic payment reminders. Many accounting programmes have this option to remind your customers of their payment obligations. 

Debtor records retention period

The retention period for your (debtors') records is seven years. This applies to both your paper and digital records.

What is debtor management?

Meaning debtor management: Accounts receivable management is all about actively managing your debtors. It consists of all the activities you undertake to ensure that customers pay their invoices on time. 

Good accounts receivable management has multiple benefits. It not only helps you have money available to pay expenses faster, contributing to healthy cash flow, but also ensures reduced credit risks, stronger customer relationships, lower collection costs, better financial planning and improved profitability. If you have many debtors, it means you are owed money by many customers. It is important to avoid making these payments late or not at all, as this could jeopardise the financial health of your business. 
With your accounts receivable, you provide overview, but with accounts receivable management, you ensure that customers actually pay on time. 

How do you set up effective debtor management?

When you pay an invoice, it is reflected in your balance sheet. The debt disappears from the credit side and your cash and cash equivalents on the debit side nemen. By keeping your records up-to-date, you can immediately see the impact on the financial condition of your organisation.

What happens if you forget to pay an invoice?

Debtor management starts even before you send an invoice. Below are six steps for effective debtor management: 

1. Know who you are dealing with
   Before entering into a partnership, check who you are doing business with. For example, request a Declaration of Payment History from the Tax Administration or check the Chamber of Commerce's Commercial Register to verify that the company is correctly registered and the contact person is authorised to make decisions. If your quotation is signed by someone who is not authorised to sign, still ask if the right person can sign your quotation. This way you avoid misunderstandings later.
2. Ensure clear agreements
   Make sure payment terms and delivery deadlines are clear. Put these in writing. You often do this in your quotation or general terms and conditions. If necessary, you can fall back on these and you will also be in a strong legal position.
3. Create clear invoices
   Make sure your invoices meet all legal requirements, such as a unique invoice number, the agreed payment term, and your bank details
4. Handle an effective dunning process
   Not all invoices are paid on time. A good dunning process will help you collect overdue payments. Start with a friendly reminder via e-mail or enquire by phone about the status of your invoice. If payment is not forthcoming, you can send a formal reminder. An accounting programme with automatic reminders can support this process.
5. Consider a collection agency
   When a customer does not pay despite multiple reminders, you can use a collection agency.
6. Get legal help
   If previous steps are unsuccessful, a lawyer can help take further legal action. This can range from recovering delivered goods to starting legal proceedings. 

What do you do with bad debts?

Sometimes an invoice is not paid or only partially paid. This can have various causes, such as financial problems at the customer, a dispute about the product or service provided, or even bankruptcy of the customer. A receivable is considered irrecoverable when you are sure that payment will no longer take place, or at the latest one year after the due date of the invoice. 

You have probably already remitted the VAT on the invoice amount to the tax authorities. Fortunately, you can pay the reclaiming VAT on an irrecoverable debt.

Maximum control over your financial processes with SimpledCard

While SimpledCard is focused on streamlining corporate expenses and claims, it also offers solutions that contribute to more efficient financial management as a whole. By keeping a grip on all your expenses through one clear system, you create a solid foundation for your financial records. 
SimpledCard allows you to link all your business expenses and declarations directly to your accounting system, making your processes faster and easier. This gives you more insight, which indirectly helps you manage your cash flow and therefore a healthier financial position for managing both debtors and creditors. 
Want to know more about how SimpledCard can optimise your financial processes? Read more about us here. 

Opt for mobile claims management

Want to make your financial administration more manageable? Find out how you can save time, avoid errors and gain more insight with our claims management solution.  
Read more about Mobile claims management with SimpledCard or contact us directly for more information.  

FAQ

What is accounts receivable?
Accounts receivable management involves keeping track of all outstanding invoices from customers who have yet to pay. It helps you receive timely payments and maintain a good overview of your cash flow.
What is the difference between debtors and creditors?
Debtors are customers who have yet to pay for products or services delivered, while creditors are parties to whom you yourself owe money, such as suppliers.
Why is debtor management important?
Accounts receivable management helps you receive payments on time, contributing to healthy cash flow, reduced credit risks and better financial planning.
How do I set up effective debtor management?
Start by verifying customers, set clear payment terms, send timely reminders and, if necessary, use a collection agency or legal action to collect payments.
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