Why is accounts receivable management important

What does… accounts receivable management actually mean?

When customers fail to pay their bills, small businesses in particular can quickly find themselves in financial distress. It is not uncommon for late or even non-payments to be the reason for bankruptcy. To protect your company from this risk, there is so-called debtor management.

What is accounts receivable management?

Accounts receivable management includes all organizational and personnel measures aimed at ensuring that companies receive their customers' payments on time. Accounts receivable management is all about payment processes of all kinds.

Are there any alternative names?

Yes, accounts receivable management is also known as receivables management, risk management and condition management.

How does this work?

The creditor (creditor / supplier) provides the debtor (debtor / customer) with certain services, e.g. B. the delivery of goods. For this he receives something in return at an agreed time, usually a sum of money. Both accounts payable and accounts receivable benefit from consistent accounts receivable accounting. This is part of the accounts receivable management.

Factoring offers the best option for successful accounts receivable management: a form of financing in which a company's outstanding receivables are sold - this increases the company's liquidity. Liquidity, in turn, describes the ability of a company to meet its payment obligations on time.

What does professional accounts receivable management include?

In addition to the creation and maintenance of accounts receivable, the constant monitoring of due dates and the granting and monitoring of credit limits, the following three components are part of professional accounts receivable management:

  • Credit check (e.g. credit check of the customer before order acceptance)

  • Accounts receivable (creation and posting of invoices and incoming payments, credits, complaints)

  • Dunning and debt collection (e.g. creating payment reminders)

What is the goal of accounts receivable management?

The aim of accounts receivable management is to keep bad debts as low as possible and thus to ensure the liquidity of a company. Companies with accounts receivable management minimize financial risks and are less prone to bankruptcy.

Do it yourself or outsource?

In particular, the monitoring of debtors and dunning are very time-consuming and are often neglected in smaller companies. That is why more and more companies are transferring their receivables management to debt collection companies. On the one hand, outsourcing can save personnel and material costs; on the other hand, it may disrupt the management of customer relationships.
Here it is important to weigh up.

Manually or by machine?

There are now a variety of accounting programs that automatically guide you through your processes. This way you keep track of paid and unpaid bills. Payment reminders and / or reminders can also be sent automatically, more easily and quickly, thus ensuring a significantly higher payment rate.

Conclusion

You see, accounts receivable management is not as difficult and wooden as it might sound. It offers you many advantages and above all it gives you more time and money to generate growth and lead your company to success.

Note: You can find further explanations of technical terms in our section "What does ...?" and in our startup glossary.

Image: Pixabay