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Complete Guide to Accounts Receivable Process

July 3, 2023
Bill Kimball

The Accounts Receivable Team
is responsible for estimating and supporting accounting for doubtful Covered Accounts
Receivables in the university’s reports and financial statements. Brianna Blaney began her career as a fintech writer in Boston for a major media corporation, later progressing to digital media marketing with platforms in San Francisco. She has worked as a financial writer for Tipalti for 7+years, keeping a close eye on shifting trends and reporting on the ever-evolving landscape of financial automation. She prides herself on reverse-engineering the logistics of successful content and implementing techniques centered around people (not campaigns). In her spare time, she loves to cook and take care of her pet squirrel, Marshmallow. A quote enables customers to have an understanding of costs in advance and to avoid any surprises when the invoice shows up.

It has to collect the money from customers who have made purchases, and it must reconcile invoicing and funds received. All these activities require policies to give them direction and procedures to specify how employees carry them out. A department in consultation with the Accounts Receivable
Team must continually assess the ongoing financial risk to the university of
continuing to provide products or services to any delinquent Customer. A
determination regarding whether to stop work and/or cease providing services to
a Customer with unpaid balances should only occur after consultation with
senior leadership. Indicators include a low amount of debt and a high rate of early payments.

  • All customer and sales data can be loaded into the system, where digital invoices are instantly generated.
  • Typically, the source of all cash flow problems in a business is poor handling of AR.
  • Except for contracts with federal or state
    government entities/agencies, normally, payments are past due after 45 days.
  • Annual –  All departments are to report total outstanding accounts receivable equal to or greater than $50,000 due from external customers as of June 30th.
  • Setting up payment expectations in the business agreement is a proactive approach to avoiding bad debt.

If they have been late, a more detailed payment plan can be considered. If a business needs to get money in faster, then the payment terms must be shorter. This could reduce your day’s receivable by as much as 15 days right there. Email or fax your invoices right away to save another day or two (e.g. QuickBooks accounting software contains this feature). You might offer a discount of 1% if paid within 10 days else net due in 30 days.

Policies & Procedures for Accounts Receivable

It will automatically send digital reminders for delinquent accounts. The accounts receivable process is designed to provide healthy cash flow to support growth and profitability. Thus, you should have a plan in place for how you want to process this part of business accounting.

account receivable procedures manual

A high volume of clients with a variety of needs and payment methods can lead to confusion and mistakes. There are specific laws set forth to protect consumers and their credit. The Federal Trade Commission (FTC) enforces laws that protect consumers and makes sure customers receive full disclosure about a company’s credit practices. If a customer has always been on time, you can be lenient when an extension is needed.

KSU departments or colleges are to contact the Cashiers and Student Accounts Office with questions concerning procedures for placing a hold on a student’s account. Collected late fees
will be centrally managed by the Accounts Receivable Team and may be applied to
the ongoing costs of collection or for other purposes as approved by the Chief
Financial Officer. Billing frequency,
terms (net 30 preferred), and billing contact information must be included in
any agreements that will result in Covered Accounts Receivables.

Accounts Receivable Best Practices

For example, a company will manage $500,000 in monthly A/R balances (that’s $6,000,000 per year!) using an A/R clerk who makes $40,000. But then the supervisor uses nothing more than On-The-Job (OJT) training for the clerk. Many service organizations wait until the end of the month to tally billable hours and determine customer charges, but waiting until the end of the month costs you money. The sale is not complete until you get paid for the sale and until you get paid you have loaned your money to your customers, interest free. The longer they have your money, the less chance there is for you to get your money back. A service organization with $700,000 in average A/R balances needed assistance, so we examined their A/R function to understand and quantify the workflow and workload issues.

If the department has approval to assess a finance charge, the amount and terms must also be disclosed on the statement. If full payment is not received the procedures outlined in .030 are to be followed. All invoice templates
in the financial system must use the university’s common billing address to
ensure monies are collected centrally to be properly applied and reconciled to
open receivables.

  • This is equivalent to 18 % annual interest and most businesses will take those terms.
  • Other than through
    direct customer service transactions through an approved petty cash or change
    fund, departments should not receive payments directly including receipt of
    cash or checks.
  • The credit application form must also have a place where the customer checks and signs for acknowledgment of all terms and conditions.
  • Indicators include a low amount of debt and a high rate of early payments.

There must be a credit application process in place to provide a company with the information it needs to make an educated decision. Customers won’t recognize the invoice until it is corrected and may not even notify you, the vendor, of the error until you call for collection. Again, avoiding this delay in error and time will amount to cash savings. If the account has been at the collection agency for at least 9 months without any collections, the Division of Financial Services will request that the collection agency return the delinquent account. Credit cards are processed electronically via
instructions provided on the invoice. Such transactions are captured via the
bank’s web payment portal with direct identification to the payee account and
the invoice number.

Wires are the least
desirable method of payment for outstanding invoices. Remittance information
and guidance for wire payments will be included as an option on invoices only
to support foreign Customers. Accounts
receivable are a significant asset and source of revenue to the University. Effective management and oversight of receivables is vital to ensuring the full
and timely collection of all amounts owed.

Accounting software removes the possibility of human error by automatically generating invoices and keeping track of who has paid what in the system. When an AR staff is acquainted with a company’s AP team, the easier the collections process becomes. Your business processes should always focus on the client and maintaining an ongoing level of satisfaction.

Invoice Dispute Process

A company should also work with a collection agency in case they need to write off unpaid invoices. All requests to write-off accounts as uncollectible are submitted to the Division of Accounts and Reports. These accounts are not to be included on the monthly accounts receivable reports after receiving the notification. The Division of Financial Services will handle the accounts receivable reporting procedures for sponsored projects and receivables being reported in KSIS. Thus, departments should not include these receivables in their reports.

Unforeseen circumstances mean there must always be a plan for escalation in the event of nonpayment. The invoice age analysis enables business owners to follow a collections policy that specifies when certain actions should be taken, like sending something to a collections agency. This report can help estimate bad debt accrual and identify invoices that need follow-up action. After the invoices go out, it’s time to think about the type of accounts receivable system you want. While some small businesses are comfortable with an offline, manual setup (think Excel), the truth is it’s not an ideal method for modern accounting.

Planning ahead enables staff to be more efficient during the collection process, making it possible for the rest of the business to focus on growth. AR software should have the ability to scan orders, receipts, and requests right as they arrive. Any corresponding document needed for invoice processing should be uploaded in the system and paired with the appropriate documents. In this instance, there must be a game plan to collect what is owed. This starts with documenting the entire AR process to audit and optimize the program.

If you have $500,000 or more in accounts receivable, then by compressing the accounts receivable cycle you will generate cash. Only the first four steps are required for accounts of $25 or less. However, they are to be included in the write-off request if not collected.

account receivable procedures manual

A “Red Flag” is a pattern, practice, or specific activity that indicates the possible existence of identity theft. These firms will not initiate litigation action until written authorization is provided by the department involved and the K.S.U. Division of Financial Services. O   Assist the Accounts
Receivable Team to help ensure prompt collection of all amounts due. Financial
– for the purposes of this policy means the University’s authorized
financial system. If you need more information on FTC regulations, look into the Fair Debt Collections Practices Act and consumer equal credit opportunity rights. “Identifying information” is any name or number that may be used, alone or in conjunction with any other information, to identify a specific person.

# Track the Collection Process

In order to track what invoices are owed and when, a business should perform an invoice age analysis. There is grouped data for current invoices, overdue by 0-30 days, days, days, and more than 90 days late. The majority of clients most likely operate on digital systems and thus, to stay in line with competition and customer needs, digitizing the process is a smart move. The credit application form must also have a place where the customer checks and signs for acknowledgment of all terms and conditions. Prior to extending credit to anyone, procedures should be established for how that is done, who receives credit, and what happens next.

Monthly – All departments are to complete a monthly accounting and aging of any receivables outstanding at the end of the month. Departments may used the KSU Accounts Receivable Report form or some other reporting tool or software of their choice. Send a letter informing the customer that unless the past due payment of $ _______ is received within the next 15 days it will be necessary to refer the account to a collection agency.

account receivable procedures manual

Require and keep only the kinds of information that are necessary for University purposes. Application for service that appears to have been altered or forged. The law also authorizes the Director of Accounts and Reports to attempt to collect the accounts which have been written off and thus assigned to the Director. Questions relating to the information in each chapter of the Policies and Procedures Manual should be directed to the office issuing the chapter.

At the same time, the Division of Financial Services will forward the original Delinquent Account Data Form to the collection agency and file the duplicate. If the debt is collected by “setoff” the account will be recalled from the collection agency. Statements are to be sent at least monthly to all customers who have an outstanding balance due. The statement should indicate the total balance due and identify a payment due date. The payment due date is up to each department, but should allow sufficient time for the department to post the payment before the next billing cycle.

Shorten Your Invoice Process

Optimizing the process starts with credit applications from new customers. Work is done to determine creditworthiness and set credit limits that encourage purchasing without credit risk. From there, the accounting system provides the data needed to send invoices, where automation saves a huge amount of time. One of the toughest jobs in the accounts receivable process is getting payments in on time. Some customers simply need a little push and that incentive can come in the form of early payment discounts.