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Billing Process: What is it, Key Elements, Steps & How to Improve it?

Table of Contents

Introduction  

Are you tired of dealing with billing issues? You’re not alone! Did you know that 60% of small businesses struggle with invoicing and payment collection? But don’t worry, we’ve got your back. In this blog, we’ll be diving deep into the billing process to help you streamline your payments and put more money in your pocket. So get ready to say goodbye to billing woes and hello to more free time (and cash) on your hands!

Quick Read: What is it Billing, Types, Process, How it Works & Format

What is a billing process? 

A billing process is a series of steps that a business or organization follows to create and send invoices to customers or clients for goods or services rendered. It includes generating invoices, tracking payments, and following up on overdue accounts.

In short, the billing process is like a game of chess. You need to have a clear strategy, make calculated moves, and be patient while waiting for the opponent (in this case, the customer) to make a move. 

Importance of billing process  

The billing process is crucial for any business as it ensures timely payment and helps maintain a healthy cash flow. Without an effective billing process, businesses risk delayed or missed payments, which can result in financial difficulties. By having a well-structured billing process, businesses can also build trust and strengthen their relationships with clients.

What are the key elements of billing process?

• Accurate record-keeping: It is important to maintain accurate records of all transactions, invoices, and payments in order to avoid errors and discrepancies.
• Clear billing terms and policies: Having clear and concise billing terms and policies can help to avoid misunderstandings and disputes with customers.
• Consistent billing schedule: A consistent billing schedule ensures that invoices are sent out regularly and helps to avoid late payments.
• Detailed billing statement: It provide customers with a clear breakdown of charges and help to avoid confusion or disputes over the amount owed.
• Prompt follow-up on overdue payments: Following up promptly on overdue payments can help to improve cash flow and reduce the risk of bad debt.
• Effective customer communication and support: Clear communication and responsive customer support can help to build trust with customers and ensure timely payment.

Quick Read: 9 Best Vendor Payment Management Software

Billing process flow chart

A billing process flow chart is a visual representation of the steps involved in the billing process. It typically includes the key elements such as generating invoices, sending them to customers, receiving payment, and reconciling accounts. The flow chart is a useful tool for organizations to understand and streamline their billing process, ensuring accuracy and efficiency.

What are the steps in the billing process? 

The billing process typically involves a series of steps to ensure accurate and timely invoicing. The steps may vary depending on the organization’s specific billing process, but some common steps are:

1. Gathering information

 This involves collecting all the necessary details about the products or services provided, pricing, and other billing-related information.

2. Creating an invoice

After gathering the necessary information, the invoice is created, which includes the description of products or services provided, pricing, payment terms, and contact information of both the provider and the customer.

3. Review and approval

Once the invoice is created, it’s reviewed and approved by the authorized personnel to ensure accuracy.

4. Delivery

After approval, the invoice is delivered to the customer via mail or email.

The customer reviews the invoice, and if there are no issues, they make the payment. The payment is then processed, and the transaction is recorded

6. Follow-up

In case of non-payment or delayed payment, a follow-up is necessary to ensure timely payment and prevent any disputes.

7. Record keeping

It’s essential to maintain accurate records of all the invoices, payments received, and follow-up activities. This helps in tracking the cash flow and identifying any discrepancies.

Quick Read: 12 Best Invoicing Software for Your Business

How to improve the billing process? 

Here are some the important pointers to improve billing process: 

1. Use billing software 

A billing software can automate much of the process, reducing errors and saving time.

2. Streamline invoicing 

Simplify the invoicing process by using templates and providing clear payment terms.

3. Set up a payment gateway 

Provide customers with multiple payment options and make it easy for them to pay their bills online.

4. Communicate effectively 

Keep customers informed about their bills and payment status, and provide clear instructions for resolving any issues.

5. Monitor cash flow  

Keep a close eye on accounts receivable and follow up with customers who are late on payments.

By implementing these steps, you can improve the efficiency and effectiveness of your billing process, leading to better cash flow and happier customers.

Quick Read: 6 Best Cash Flow Management Software

Best Practices for Streamlining the Billing Process

Here are some best practices for streamlining the billing process:

1. Automate Invoice Generation

Automating invoice generation can save time and reduce errors by automatically creating invoices based on pre-set criteria or customer orders. This can help streamline the billing process and ensure that invoices are accurate and timely.

2. Offer multiple payment options

Offering customers multiple payment options such as credit cards, debit cards, and online payment gateways can increase the chances of timely payment and improve customer satisfaction.

3. Use an online payment portal

An online payment portal can simplify the payment process for customers and businesses, reduce manual errors, and provide a secure and convenient way of making and receiving payments.

4. Set clear payment terms and policies

Setting clear payment terms and policies can help avoid confusion and disputes, improve transparency, and encourage timely payment.

5. Regularly review and improve the billing process

Regularly reviewing and improving the billing process can help identify and address inefficiencies, reduce errors, and improve customer satisfaction.

By implementing these best practices, businesses can streamline their billing process, improve efficiency, and reduce errors and delays.

Quick Read: 11 Best Online Business Payment Solutions

What are the challenges in the billing process?

Here are some common challenges in the billing process:

1. Inaccurate Data Entry

One of the most common challenges in the billing process is inaccurate data entry. Entering incorrect information can lead to billing errors and delays, causing frustration for both the customer and the company. It’s important to have a system in place to double-check data entry and catch any mistakes before sending out invoices. This can help ensure that invoices are accurate and that payments are received on time.

2. Late Payments

Late payments can impact a company’s cash flow and revenue, causing additional follow-up and administrative work. It’s essential to have clear payment terms and policies in place and to follow up promptly on any overdue payments. Offering multiple payment options and using an online payment portal can also help encourage timely payments and make it easier for customers to pay their bills.

3. Disorganized Billing Process

A disorganized billing process can lead to confusion and inefficiencies, increasing the likelihood of errors and customer dissatisfaction. To streamline the billing process, it’s important to have a clear and organized system in place for generating and tracking invoices, as well as for following up on any outstanding payments. Regularly reviewing and improving the billing process can also help identify areas for improvement and reduce the risk of errors and delays.

Conclusion  

In conclusion, the billing process is an essential part of any business that involves selling products or services. It ensures that the company gets paid accurately and on time while also providing customers with clear and concise invoices. However, it can be a challenging process to manage, with potential errors and inefficiencies that can impact the company’s reputation and revenue.

By implementing best practices and addressing common challenges, businesses can streamline their billing processes, reduce errors and delays, and improve customer satisfaction. Automating invoice generation, offering multiple payment options, using an online payment portal, setting clear payment terms and policies, and regularly reviewing and improving the billing process are all critical steps towards achieving a successful billing system. By taking these steps, businesses can focus on providing excellent products and services to their customers while also ensuring timely and accurate payments.

The process of billing involves creating and sending invoices to customers or clients for goods or services provided. It typically includes gathering all necessary information about the customer and the transaction, generating an invoice with the correct details, and sending it to the customer for payment.

Here are the key points to prepare a billing process: 1. Determine the billing frequency 2. Identify the billing method 3. Establish billing policies and procedures 4. Create invoice templates 5. Collect necessary information for billing 6. Verify accuracy of billing information 7. Send invoices to customers 8. Track and record payments 9. Follow up on overdue payments 10. Analyze billing process and make improvements as needed

The billing and collection process refers to the steps a company takes to bill customers for products or services rendered and to collect payment for those bills. The process typically includes generating invoices, tracking payment due dates, and following up on any outstanding payments. A well-designed billing and collection process is essential for ensuring a steady flow of revenue and maintaining positive relationships with customers.

The components of billing can vary depending on the type of business and the specific needs of the billing process. However, some common components of billing include generating invoices, recording payments, tracking outstanding balances, and following up on late payments. Other components may include issuing credits or refunds, managing disputes or chargebacks, and providing customer support related to billing inquiries.

Optimization of the billing process involves analyzing the current billing process, identifying inefficiencies and bottlenecks, and implementing changes to streamline the process and improve accuracy, efficiency, and customer satisfaction.  This may include automating invoice generation, offering multiple payment options, using an online payment portal, setting clear payment terms and policies, regularly reviewing and improving the billing process, and addressing any challenges that arise.

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What is e-Billing? A Comprehensive Guide for Electronic Billing

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Collections, Billing, & Payment Strategies for Businesses During COVID-19

With all the current uncertainties in the world, no businesses are immune to the impact of COVID-19. Those that are struggling to stay afloat with low cash reserves or unstable cash flow, are particularly vulnerable.

The difference between the companies that survive a recession and those that don't? The businesses focused on managing their cash flow.

By adopting cash flow collections, billing, and payments best practices for your business, you can significantly improve your cash flow now, and you'll be more prepared moving forward.

Here are tips to help you get better at how you manage your business's cash flow now...

Collections Strategies 

Collections are often the last thing anyone wants to do- especially during financial uncertainty.   

However, getting paid is how you keep cash flow coming in. Even if you're not busy, get paid for the work that you’ve already finished. 

Outstanding balances can seriously impact cash flow and hold your business back. By implementing a good collections strategy, you can improve the likelihood that you will get paid on time.

Follow The 3 F's of Collections...

Firm . Never end a call without a confirmed date.

You want to make sure you don't end any call without getting a firm date for the next step : either expected payment date (paid in full), upcoming payment arrangement dates, or at least a date when you can have the next conversation about payment due.

Friendly . Kindness goes a long way.

Provide the highest level of customer service to help clients through this process. Your goal is to make this as minimally stressful for them. Being friendly will make the customer feel more comfortable and eager to help you resolve the issue. 

Focused . Overcome objectives and be prepared with answers.

Be ready to overcome objections and have the answers ready before you pick up the phone. Just like you train your staff to overcome the objections in the sales process, train your staff to overcome objections in collections.

Overcome The Three Biggest Objections

There are three big collection objections we typically see...

1. “The check is in the mail" Your Answer: “ Luckily , we don’t need the physical check anymore. Now with QuickBooks payments, the check information verifies the payment and enters the deposit without physically having the check .”  

→ You no longer have to wait for the check to physically get delivered- all you need is the check number, the amount of the payee and their banking information. You can put this information right into QuickBooks and it enter it as a deposit (and it'll also confirm whether or not they really wrote the check.)

2. “I can pay you half.”

Your Answer: “Great, thank you, that helps! Let's get that info, then set a date for when we can expect the other half. If you're unsure, I'll check back next week on X date and time”

→ Make sure a firm date is set on when you will receive the other half of the payment.

3. “I can’t pay anyone right now. We are really trying to figure out how to hold onto our cash just to keep our people here."

Your Answer: “Okay, I understand, and we've been seeing this. But we also want to pay our people as well. Here are some options to help you resolve this: We now accept Credit Cards! and Payment plans can also be discussed. Which would work best for you?” 

→ We recommend you turn on Intuit Payment Solutions. This feature has an automated merchant account service that's linked inside QuickBooks to be able to automatically send an email out to the client. This also shifts the risk of collections from your business to credit card company. It is a no brainer to get the money in your bank for such a small interest rate (3.5%). 

Accept Credit Cards

A big pushback we get from businesses on accepting credit cards is, "I don't want to pay the fees ”. The truth is, even in good times, unless you have really large invoices, it's cheaper than paying the combined costs of traditional methods. Some businesses still snail-mail out an invoice, wait to receive a payment by check, and when its late, then paying the bookkeeper pick up the phone to collect the money.

Implement a Receivable Management Tool

If collections is a big issue for you, you have a liability. If you use QuickBooks Accounting Software online, you can use a tool called Funding Gates ® , which is a AR management portal that will help you automate the process of sending out the collection emails. You can make those emails get more direct progressively based on whether they are responsive.

Your Collections Strategy Starts on the dotted line...

Follow a written credit policy.

Going forward with any of your new work, make sure your proposal and your contract has a written credit policy. 

Include these key components in your credit policy:

• Payment Terms: When is the balance due? Who is the person paying the bills? 
• Late Fees :  What are they, and when are they going to be charged? We recommend between 1.5% and 1.8% per month. The goal is not for you to earn interest income. The goal is for you to get that bill to the top of the pile. 
• Legal Fees: Who will pay your attorney fees if you have to go to court?

Check Credit References

Don't let your client's cash flow problems become your cash flow problems . If you're going to lend money, act like a bank. Check all references, do a background check, and check their credit rating.

Make sure before you issue the loan and start working on an account, the client can actually pay you. Your cash flow problems will only continue to get worse if you do work for people that don't have the ability to pay your payroll.

Get The Deposit Before Work Begins

We recommend a 50% deposit on every job.

Why 50%? If you have a 40% to 60% profit margin, then you're getting paid for the labor cost and materials before you actually start the work.

Let clients know that in order to provide great prices, great services and a great level of support- you’re only able to do this because you’ve got great suppliers. A deposit makes sure you can continue to provide your clients with the level of care they’re used to.

Billing Strategies 

Implementing more frequent and effective billing process can improve your cash flow by aligning clients' payment for services with your service related expenses.

Bill As Soon As Possible

The timing of how often you send invoices has a significant impact on your cash flow. Most businesses like to do billing monthly because it's easier for the bookkeeper and the accountant to collect. But, if you're worried about cash flow, we strongly recommend switching to a weekly billing or bill as quickly as you can . Bill when you finish a milestone.

You want to get an invoice into your client's hands and don't wait for the month.

Send An Invoice On The Weekend

You are more likely to get paid 10 days faster by sending an invoice out on the weekends. Why? Because the client will surmise psychologically- if you took the time to send out an invoice on the weekend, you are serious about getting paid.

This doesn’t mean you have to be working on the weekends- you can automate your client’s billing through Intuit Payment Solutions. 

Automate and Streamline Billing

Streamlining the billing process will speed up your cash flow more than anything else. QuickBooks Accounting Software Intuit Payment Solutions makes this easy. You can automate the process of getting timesheets and payroll data into your accounting system .

Regardless of whether you do billing by time or not, you'll be able to see how much work has been done and have that information at your fingertips.

The faster you can get the time into the accounting system , then it's already there for the billing to be done. 

Payment Strategies 

The final piece of the cash flow puzzle is payment processes. Here are a few tips to streamline your payment processes.

Be Transparent and Hones t

Call your bank, landlord, and supplier. It's time to have thick skin, be honest, proactive, and pick the phone up to say "Here's where I'm at ."

This is not a reflection on you as a business person. Everyone is going through this, and the banks have been flushed with money specifically to be able to work with you.

This is not a time not to go dark with your landlord, your vendors, and your bank. Let them know exactly what the situation is so they can plan accordingly. 

If you have to pay bills, pay slowly (but always on-time).

Some bookkeepers have the mindset of: "I need to have a clean desk rule: I want to pay bills immediately and get them out the door and off my desk as soon as they come in ." 

A good practice is to hold onto your cash as until it's time to pay, and make sure you have enough money to pay the people that earn your revenue. 

We recommend implementing Bill.com , an electronic bill payment service, that has an integration with QuickBooks and almost every other accounting system. It helps with timing and reduces the steps in the bill payment process - improving efficiency.

When bill payment is automated, invoice data only has to be entered once into the accounting system, saving time and money. Businesses can cut bill payment time in half. As a result, vendors can rejoice by being paid 2-3x faster electronically than with the manual method. 

As for the cost savings, The Wall Street Journal estimated that the average small business spends $12 to pay a bill. By using Bill.com to pay bills electronically, the cost to pay a bill can be slashed to around $1.50 .

→ We saved about $2,600 per client per year using bill.com. We also process AP 2.5 times faster with the same amount of people. It used to cost us $12 to create and process each check. We'd lose about $58,000 a year if we went back to the old, manual processes and kept fees the same.

Manage Interest Rate Rules

A good controller puts their most expensive debt at the top. If you have to pay the bills, make sure you're paying the ones that have the highest interest rates first. Any available cash you have should be used to pay your off credit card. Every day that you pay it down, that's less interest you're paying to the credit card company in the future. 

Auditing Every Expense

Now is the time to go through your credit card expenses line by line.

Review everything and if it's not mandatory, cancel it. Those recurring "$50 dollar a month" subscriptions charges add up!

If the amount of cash you bring in is less than the amount of cash you're paying out, you're going to eat into your reserves.

Create (or Revise) Your Cash Fl0w Forecast

Without a real sense of your cash flow, you cannot move forward.

You need to have a cash flow forecast for your business. Create (or revise your last forecast)- your projected sources and uses of cash . Now is the time your cash flow forecast needs to be reviewed and updated to help you better prepare for the future. You'll be able to navigate the road ahead and recover more quickly.  

For help in getting started: talk to an expert.  

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What Is Billing in Accounting - Billing Process Explained

Most of us are likely to be familiar with the term ‘billing’ owing to its use in everyday speech.

But if you’re running your own business, it’s essential to delve into a more technical understanding of the concept.

The standard accounting definition of billing describes it as the process of generating invoices for customers on a recurring or one-time basis, depending on the type of pricing plan that a customer has chosen.

In this guide, we will be going over what billing means, why it’s important, the step-by-step billing process, along everything else you need to know about billing for your small business accounting .

Read on to learn about:

What Is Billing in Accounting?

Importance of billing for businesses, the billing process in accounting (3 main steps), types of billing.

• How to Improve The Billing Process

What Is Billing FAQ

Billing is defined as the step-by-step process of requesting payment from customers by issuing invoices. An invoice is the commercial document businesses use to request payment and record sales.

More specifically, an invoice includes the name of the product a buyer purchases, the products’ pricing and payment terms, and the buyer and seller contact information.

You can learn more about the elements of an invoice and how to create one from scratch by heading over to our guide on how to make an invoice .

The most basic use of billing is to keep a record of all sales that happen within the business. However, there are many other purposes and benefits of billing, that include:

• Inventory Tracking. If your business sells merchandise, billing helps you keep track of how much inventory is actually available for sale, whether or not the client order has been fulfilled. You’ll also be able to use this information to plan and forecast the amount of inventory your business will be needing in the future.
• Accurate bookkeeping . Billing records when a good or service is sold, to who, for how much, and when it’s due. This way, both the buyer and the seller are able to track their payments accurately and keep outstanding invoices from becoming overdue.
• Generating valuable insights. By keeping a daily record of bills and invoices, you’re able to use the data to find out your most in-demand goods, peak buying times, customer buying patterns, and so much more. Long-term, this helps you develop useful marketing strategies for your business .
• Legal evidence. Issuing an invoice is an essential step in the billing process since it acts as legal proof for the sale. Not issuing an invoice can cause your business issues with collecting payments for the services or products provided.

The billing process can be broken down into three main stages:

1.  Review Billing Information

The very first step is reviewing your billing information.

Reviewing requires a business to collect and analyze all the information needed in order to create an invoice or bill.

Practically, it involves checking all product codes and corresponding prices, verifying taxes, adding freight charges, and confirming pre-discussed payment terms, wherever applicable.

The billing info to be reviewed will differ a bit depending on whether your business provides physical products or services.

2.  Generate the Invoice

After all the necessary financial information about the sale has been collected and reviewed, it’s time to put the data together and create your invoice.

Now, you can either design your own invoice template from scratch or choose a premade template that you can personalize with your brand colors and logo. Both Word and Excel provide a gallery of templates, where you can type “invoice” in the search box to get access to the invoice templates.

These Word and Excel invoices may be free and easy to access, but the cheapest option is not always the best one for your business.

For starters, free templates aren’t very professional-looking and can be hard to customize. One small change causes the entire format to scramble, and you end up wasting your office hours creating invoices, rather than managing your business.

That’s why most businesses nowadays opt for accounting and invoicing software to automate the process of making an invoice. With invoicing software, all you have to do is go to the invoice generator , choose the invoice template you like best, customize it with your brand colors and business information, and press send.

3.  Send Out the Invoice

Invoices can either be delivered physically through snail mail and fax or by writing an invoice email with the document attached.

The traditional postal office method isn’t very convenient, as it can be slow, time-consuming, and unnecessarily costly. The extra expense of paper, ink, and postage, can be easily avoided by sending an email attachment instead.

If you want to save even more time and effort, another option is to send your invoice email through invoicing software. All you have to do is create the invoice, and then press the built-in Send button, for your email to be immediately delivered to the customer.

There’s no need to worry about writing down a subject line, email body message, and manually attaching the invoice pdf file - invoicing software does everything for you.

For more advice on sending invoices and tips on how to get paid on time, head over to our guide on how to send an invoice .

Depending on the type of financial activities your business takes part in, there are a variety of billing mechanisms you can choose to offer.

Here are some of the main types of billing small business owners deal with during their day-to-day operational activities:

1.  Milestone Billing

As the name suggests, this type of billing method requires the completion of a milestone (which could be a particular event or a sub-contract). It is this milestone completion that is given a billing value. An invoice is generated and issued when this event occurs.

2.  Progress Billing

In this billing method, invoices are generated in tandem with costs incurred on a routine, monthly, or bi-monthly basis. Therefore, cost recovery is complete before delivery.

3.  Sub-line-item Billing

Here, invoices are generated as sub-items of a larger process (such as various parts of a construction process). Such a billing method helps strengthen cash flows. This is seen in the form of a proforma invoice , which is a preparatory bill sent before work is finished.

4.  Billing on Completion

This type of billing method is popular in cases with a fixed fee or a one-time service. The payment is made when a service has been provided, or a product or project is delivered. This type of billing is very frequent for businesses offering retail services on restaurants, grocery stores, shopping centers, and so on.

5.  Billing for On-going Services

A recurring payment plan is often the best option for on-going services such as online subscriptions, software plans, etc. It ensures a consistent flow of cash into one’s business. The frequency may be weekly, monthly, or even longer depending on the nature of the service or cash flow expectations.

If you’re a subscription-based business or offer specific services for a monthly fee, then this type of billing is likely the best option for you. With cloud accounting software, you can completely automate the process, and set up recurring invoices so they get sent automatically at a fixed interval of time.

6.  Prorated Billing

This particular type of billing charges customers based on the cost per day. Customers, therefore, only pay for the number of days that they used the service. In many cases, this can encourage more customers to decide to buy a service or a product because canceling earlier would not lead to overcharging.

Want to learn about the different types of invoices you can issue, what elements they contain, and when it’s best to use each one? Then check out our full guide on invoice types , for more information.

How to Improve the Billing Process

For a small business, billing can be a tedious process. Being a crucial part of any business, it is imperative to have an efficient billing system in place.

1.  Set Clear Payment Terms

Setting clear payment terms on your invoices increases the likelihood of receiving quick payments.

Make sure you include clear details about when the payment is due, along with your preferred method of payment such as cash, check, credit card, or any other. Also, if you charge late fees or offer early payment discounts, you need to add that information here too.

2.  Send the Invoice Fast

Invoices are best sent immediately after a good or service is delivered. Make sure your customers are happy with your service and that there weren’t any order issues, and then bill them as soon as possible.

At the end of the day, the faster you send, the sooner payment is received.

3.  Automation

Most parts of the billing process can be automated using simple tools or software. This includes invoice generation, overdue invoice reminders, automated payments for recurring fees, etc. You can even use free invoice templates to speed up your billing.

4.  Switch to Better Software

It seems to be a common (and justifiable) notion that using spreadsheets can be bad for business. It is not only time-consuming but also leaves room for error. Therefore, investing in a good billing software or billing system can prove to be extremely beneficial. In addition to essential billing tools, a software billing system can pack in ERP features or recurring payment options. Cloud-based invoicing software is also worth considering.

5.  Intelligent Integrations

Expanding on the previous advice - it’s essential to pick billing or invoicing software that is open to integrations with other tools. Perhaps you’d like to integrate your CRM with your billing software. Or maybe you’d like it to integrate it with your email. The best billing software enables you to work faster and smarter with intelligent integrations that make billing easier and hassle-free.

#1. What’s the Difference Between an Invoice and a Bill?

For transactions that are completed in one go, it’s more common to use a bill as documentation. This happens because a bill is short and less detailed than an invoice would be, and includes only important details regarding prices and taxation. For example, you can think of billing done at restaurants, pharmacies, beauty salons, or anywhere where you can purchase goods or services in person.

Invoices, or sales invoices , on the other hand, are commonly issued for products that get sold on credit or that are recurring. So, when a customer doesn’t pay for a good or service on the spot, businesses issue invoices instead of bills. An invoice will contain extra elements such as payment terms, a due date, contact information, a detailed description of the goods and services, and more.

If you want to learn about the differences between a bill and an invoice, head over to our guide on bills vs invoices , for more information and a comprehensive comparison chart.

#2. How Much Time Should You Give Clients to Pay an Invoice?

A widespread payment term businesses use is net-30 , which basically means that your customer has 30 days to pay back.

With that being said, there’s no straight answer for every company - payment terms depend on different factors such as your business’ industry, relationship with the clients, or total amount of the invoice.

#3. Is Billing Accounts Receivable?

As we’ve mentioned, billing is the process of generating and issuing invoices. Whereas accounts receivable is the asset account that displays the balance of any outstanding invoices or money owed to a business , in the short-term.

So, essentially, billing and accounts receivable are not the same things.

#4. What Is a Billing Cycle?

A billing cycle, or billing period, is the time period in between billing statements.

So, in simpler words, the billing cycle refers to the interval between the last billing date and the current billing date for any sale of goods and services. The length of this cycle varies from business to business, but it typically lasts between 20 to 25 days.

Key Takeaways

Obtaining timely and adequate customer payments is essential for any business. An efficient billing system forms the foundation for an integrated and streamlined payment collection process and is crucial to your accounting and bookkeeping process. Therefore, for a small business, billing often requires more investment (such as spending in billing or invoicing software) to improve efficiency and minimize losses.

Deskera is one of the most favored cloud software when it comes to a small business as it offers a very efficient and easy-to-use billing and invoicing software for small businesses.

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10 Best Practices in Billing and Collections

Topics: bookkeeping services , accounting processes , accounts payable

Cash flow problems can sink even profitable businesses. Not having a modern, efficient accounts receivable system in place can make getting paid on time and in full difficult. The following are 10 actionable ways to streamline your billing and collections.

1. No More Manual Systems

Like you wouldn't use a typewriter to write a letter to your client, you shouldn't use Excel spreadsheets or other manual systems to bill your clients. Manually handling billing leaves too many opportunities for mistakes to occur. The best invoices use up-to-the-moment data and include all aspects of a transaction such as hours billed or product specifications. Getting away from Excel or spreadsheet-based tracking system will allow you to send out timely, accurate invoices that make it easier for you to be paid promptly.

2. Try Cloud-Based Software

The benefits of cloud-based software for businesses  are widely known. Good software helps you accurately track receivables, including the invoices you've sent, if they've been viewed, what's been paid and what invoices are outstanding. You can access the information anywhere, and cloud-based solutions are often more secure than other alternatives. If you choose outsourced bookkeeping services, make sure the company you hire is using the right software to make tracking billings efficient and simple.

3. Deliver Invoices Electronically

It is simpler to track down an appropriate email contact than it is finding the right mailing address. Also, you can guarantee that your invoice reached the right person and isn't languishing on a desk somewhere, waiting to be delivered. It's also easier to follow up with a second invoice via email (or fax) than it is to send another invoice via mail hoping someone gets it.

4. Customize Invoice Times

Invoice clients when they are most likely to pay. Customize the billing schedule to the times clients can get the approvals necessary to pay their invoices immediately. There has to be an understanding of the client's accounts payable approval process for this system to work. It also means having different billing times and accounting procedures for the bulk of your clients, but the potential increase in cash flow will be worth the extra work.

5. Delegate Invoicing Responsibilities

Invoicing is best done by the people responsible for the client. They work with the client regularly, so they understand their billing procedure and who is responsible for approving payment. This will also cut down on any billing errors or other issues that could delay the invoice being paid on time.

6. Have a Process for Timely Approval

Invoices should be approved and sent out promptly. To cut down on wait times, have a process in place to get invoices approved quickly. Institute a system that requires invoices be approved within 24 - 48 hours. If the approval doesn't happen in the necessary time frame, escalate the issue to a higher-level manager.

7. Offer a Discount for Early Payments

Incentivize clients to pay early. A 1 percent discount is a nice way to get clients to pay earlier, particularly those clients that have a history of consistently late payments. Cash-strapped clients may find the discount appealing as they search for any savings they can find while they get their finances in order. Remind clients of the discount each month when their invoice is sent so they know they have the option and are more likely to use it.

8. Make Friends With the Accounts Payable Person

Relationships are everything. Take the time to get to know the person responsible for making sure your invoice gets paid. You want to be the company to get paid first in good times and in bad times. A little small talk goes a long way. Maintaining this relationship means you're likely to get paid before anyone else. People are more likely to pay those they like and have relationships with first when times are lean, so be on a first-name basis with your client's accounts payable manager.

9. Make Consistent Contact With the Client

According to Vixen, companies should touch base with the client on three separate occasions before the invoice becomes past due. First, call the client the day the invoice is sent. This call is purely informational, letting the client know the invoice is sent and answering any questions the client may have. Next, call two days after the invoice has been sent to see if the invoice was received and to remind the client of the discount available for those who pay early. Finally, call the day the invoice is due to see if there are any concerns that may delay payment. While the process is tedious, keeping up with this contact schedule drastically decreases your days sales outstanding.

10. Know When to Get Outside Help

While all the measures above will help drastically decrease outstanding invoices, there still may be clients that are severely delinquent and additional assistance is required to get those invoices paid. Make sure clients know well in advance what level of delinquency will trigger the need for their invoices to be sent to collections and offer an opportunity to work with them before it gets to that point.

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Best practices for the accounts receivable process

Reading time: about 4 min

If you have ever let a friend buy your dinner, promising them you’ll pay them back later, you understand the basic principle of accounts receivable. Accounts receivable refers to outstanding invoices or the money that customers or clients owe the company for any goods or services rendered. It’s essentially a corporate IOU.

When a company sells an item or service, they can either request payment at the time of purchase or extend credit to the buyer so they can pay the total cost later.

If a customer pays immediately, the transaction is recorded and reported. Case closed. But what if someone pays with credit? With an accounts receivable process flow in place, you can ensure that your company still receives payment. Use the following accounts receivable best practices to build a successful AR process flow.

Best practices for implementing an accounts receivables process 

Some of the most basic and essential steps for a typical AR process flow are the following:

• Develop a collection plan.
• Document your collection process.
• Log all charges and expenses concurrently.
• Incentivize early payments by offering discounts.
• Build and maintain relationships with clients.
• Have a plan in place to always get your payments.

1. Develop a collection plan

Create invoices to bill clients at the right time. Ask your clients what day is the most convenient for them in terms of cash flow. Some customers might get billed bimonthly, some weekly. It will depend on your business agreement. 

Consider these factors when creating a new business agreement:

• What is this customer’s payment history? If they’ve always been on time, then you can be lenient when they need an extension. If they’re routinely late, then you may need to build a more detailed payment plan.
• How does your business stand? If you need to get money back faster, then you’ll have to make your payment terms shorter.
• What are the industry standards? Take a look at the billing practices in your field. Depending on what you’re able to afford, decide whether you’ll match payment terms or outdo your competitors by giving your customers an advantage (e.g., more time).

Agree on a date and send all invoices electronically to keep better documentation. This strategy will streamline your accounts receivable process flow.

Learn how Lucidchart can help you refine and document your accounting cycle.

2. Document your collection process

So now you’ve got a plan, but how can you make sure that everyone follows it? Or that it’s working the way it should? You need to document your AR collections process. Visualizing your accounts receivable process steps in Lucidchart can help you:

• Reduce errors in billing.
• See which processes could be automated or done electronically to reduce input errors.
• Audit and optimize your process.
• Onboard new employees more quickly.

Learn how to streamline your accounts payable process in Lucidchart.

3. Log all charges and expenses concurrently

Another best practice is to scan all receipts, orders, and requests as they arrive so that they’ll always be in the system for the next invoice. If you delegate invoicing responsibilities to specific staff, they’ll anticipate the tasks needed for completion.

4. Incentivize early payments by offering discounts

One of the most trying aspects of AR collections is securing timely, consistent payments. However, every business loves a good deal. Not every company will have a strong enough cash flow to take the offer, but you can incentivize the companies that do to make payments earlier by offering them some kind of discount.

5. Build and maintain relationships with clients

The best-kept secret for successful accounts receivable collection? Make your clients feel like gold. If you’ve ever had an overdue medical bill or credit card debt, chances are you’ve received a host of annoying calls. No one enjoys those—you don’t know who the voice on the other end is and you’re not exactly ecstatic to pay.

However, to ante-up the accounts receivable process, you need to make sure your AR staff have phenomenal relationships with clients and maintain consistent contact with them. Always respect the client and make sure your business focuses on the clients and how they will feel at each stage of the process.

6. Have a plan in place to always get your payments

In spite of how great your client relationships are, unforeseen circumstances sometimes prevent payment—not meeting revenue, interrupted cash flow, and even bankruptcy.

Regardless of the cause, don’t let it affect your accounts receivable process. If you happen to stumble upon a worst-case scenario non-payment issue, here are six steps to follow:

• Make a friendly phone call asking if they need more time.
• Wait no more than five business days before calling again.
• Visit them in person, and then send a follow-up email explaining your concerns.
• Send a letter of demand.
• Send a final letter of demand, if needed.
• Hand the case over to a debt collection agency.

Sometimes even the best clients have cash flow problems. However, setting up all payment expectations at the beginning of the relationship will better every outcome.

These basic tips should help you streamline your accounts receivable process. Planning ahead and sticking to your plan by documenting your process allows your employees to be more efficient and consistent when handling collections. Overall, this will make it possible for the rest of your business to operate smoothly and invest in growth.

Remove inefficiencies and optimize your business processes with Lucidchart.

About Lucidchart

Lucidchart, a cloud-based intelligent diagramming application, is a core component of Lucid Software's Visual Collaboration Suite. This intuitive, cloud-based solution empowers teams to collaborate in real-time to build flowcharts, mockups, UML diagrams, customer journey maps, and more. Lucidchart propels teams forward to build the future faster. Lucid is proud to serve top businesses around the world, including customers such as Google, GE, and NBC Universal, and 99% of the Fortune 500. Lucid partners with industry leaders, including Google, Atlassian, and Microsoft. Since its founding, Lucid has received numerous awards for its products, business, and workplace culture. For more information, visit lucidchart.com.

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A Guide to Building an Effective Collections Strategy for AR Managers

Managing debt recovery can be a complex task for finance professionals and collections teams. It involves tracking digital transactions across various payment channels and assessing customer creditworthiness. Debt collection is about making sure you get the payments you’re owed. However, the process can be more complex – this is where the collections strategy comes into play.

There are many challenges along the way, and accounts receivable managers must have effective strategies in place. This discussion on collections strategies aims to provide AR managers with practical insights and effective methods to handle the complexities of debt recovery, ensuring a proactive and robust financial approach.

What is a Collections Strategy?

A collection strategy in accounts receivable refers to the systematic plan and approach that a business or organization adopts to manage and recover outstanding debts from its customers or clients. The primary goal of a collection strategy is to ensure the timely payment of invoices and reduce the risk of bad debts. 

Why Is It Important for AR Managers to Build a Collections Strategy?

For an AR manager building a collection strategy is essential for maintaining financial stability, reducing risks, improving communication, and optimizing the overall efficiency of the accounts receivable department . It establishes a framework for proactive management and ensures that the organization can effectively navigate the complexities of the credit and collection process. 

Here are a few reasons to build an effective collection strategy.

Cash Flow Management: A well-designed collection strategy ensures that payments are received on time, helping maintain a steady and predictable cash flow for the business.

Reduced Bad Debt Risk: By proactively managing accounts receivable, an effective collection strategy helps minimize the risk of bad debts . It establishes clear procedures for identifying and addressing delinquent accounts promptly.

Customer Relationship Management: A collection strategy allows AR managers to strike a balance between collecting payments and maintaining positive relationships with customers. Clear communication and fair practices contribute to a more positive customer experience.

Standardized Processes: A collection strategy provides a framework for standardized processes and procedures, reducing the likelihood of errors, miscommunications, or oversights in the collection process.

Optimized Resource: AR managers can allocate resources more efficiently when they have a clear strategy in place. This includes knowing when to escalate collection efforts, negotiate payment terms , or involve legal action.

Performance Monitoring: A collection strategy establishes KPIs for evaluating the effectiveness of the AR department. This allows for ongoing assessment and improvement of collection processes.

What are the Challenges Faced in the Collections Process?

Before we explore solutions, it’s important to understand the common problems faced by collections teams. By identifying these challenges, AR managers can better navigate the path to financial success. Some major challenges include:

Handling a Large Volume of Delinquent Accounts

Collections teams often deal with a high volume of delinquent accounts, making it challenging to allocate sufficient time and resources to each account. This can lead to follow-up delays and an increased risk of overdue payments .

Limited Time to Address All Accounts

Time constraints can hinder the ability of collectors to address all accounts in their worklists. This limitation may result in missed opportunities for timely communication and resolution of payment issues.

Inconsistent and Outdated Data

Incomplete or inaccurate information about customers and their payment status can lead to redundant efforts. Collectors may waste time attempting to collect payments that have already been settled or improperly allocated, causing strained customer relationships and an increase in DSO.

Inadequate Correspondence

While collections correspondence is essential, focusing on non-critical customers or neglecting the groundwork of customer collaboration can have adverse effects. Collectors may miss the opportunity to address the needs of customers who require more attention, leading to delayed payments.

Improper Customer Prioritization

Relying solely on static parameters such as due dates, invoice values, and customer segments for prioritization may not be sufficient. Dynamic changes in the financial health of a company or a customer’s situation may not be adequately addressed, leading to ineffective prioritization.

To address these challenges, AR managers along with their teams need to regularly assess and refine their collection processes. This includes implementing strategies to improve data accuracy, enhancing correspondence methods, and adopting more dynamic customer prioritization approaches. It’s essential to stay proactive in addressing these challenges to optimize the debt collection process and reduce bad debts.

How to Build an Effective Collections Strategy?

For AR managers aiming to build an effective collections strategy, it is essential to start by thoroughly understanding the unique dynamics of your organization and its customer base. Begin by assessing the current collections process, identifying pain points, and evaluating the effectiveness of existing approaches.

Engage with your collections team to gather insights on successful strategies they have employed. With this information, tailor a strategy that aligns with the specific needs and challenges of your business. 

Implement clear and concise communication protocols, ensure accuracy in customer data, and leverage technology to enhance efficiency. Regularly evaluate and adjust the strategy based on performance metrics and feedback, fostering a dynamic and responsive collections approach.

Listed below are a few strategies you can implement:

Standardize Operations

To streamline operations across your organization, begin by examining existing processes. Identify the current practices of your collections team. For instance, some may prefer sending invoices in the first week of the month, while others may opt for immediate invoicing upon product or service delivery. Engage with each representative to determine the most successful strategies. Once you identify the most effective collection approaches, aim to standardize these practices throughout the entire accounts receivable department.

Segment and PrioritizeAccounts

Implement a systematic approach to prioritize delinquent accounts based on factors like age, amount owed, and customer risk. Segmentation allows you to focus resources on high-priority accounts, ensuring a more targeted and effective collections process.

According to McKinsey & Company , companies should categorize accounts into 4 segments – burdensome, angelic, caring, and dire. Here’s how the segmentation looks:

Incorporate Automation for Time Management

Integrate automated tools and software to streamline routine tasks and communications. Automation can significantly reduce manual efforts, allowing collections teams to allocate time more efficiently and address a larger volume of delinquent accounts within existing time constraints.

Regular Data Audits and Updates

Conduct regular audits of customer data to identify inconsistencies and inaccuracies. Have a centralized database of all customer information and related details. Establish a protocol for updating customer information to ensure data reliability. Leverage data analytics to identify trends, assess customer risk, and make informed decisions. Consistent data maintenance helps in avoiding redundant efforts and enhances the overall effectiveness of debt collection strategies.

Clarity in Payment Terms and Policies

Ensure your payment terms are straightforward and easily comprehensible. Communicate expectations and payment timelines to prevent misunderstandings, establishing a solid foundation for a smoother collections process. Transparently outline late fees and penalties to encourage timely payments.

Adaptable Payment Plans

Offer flexible payment plans, especially in challenging financial situations. Recognize that some customers may face temporary hardships, and by being flexible with payment terms and allowing partial payments, you demonstrate a willingness to collaborate. Prioritize maintaining customer loyalty over a single transaction.

Diversified Payment Options

Provide diverse payment options to simplify the payment process for customers. Invoices should be easily payable, and a self-service portal with secure payment options , such as credit cards, ACH transfers , wire transfers, or digital wallets, can expedite payments and enhance the overall customer experience.

Personalized Reminder Communications

Customize reminder messages and follow-up emails to add a personal touch. Tailor communications to each customer’s situation, demonstrating recognition of their unique circumstances and a commitment to working together to resolve payment issues. Personalized communication can contribute significantly to nurturing goodwill.

Incentives for Timely Payments

Consider providing incentives for early payments or timely settlements. Discounts, rewards, or extended credit terms can serve as attractive motivators for customers to settle their debts faster. Offering such incentives not only encourages prompt payments but also strengthens the positive relationship with customers.

Evaluate Performance

Regularly evaluate and refine collection processes based on performance metrics and feedback. Continuous improvement ensures that strategies remain effective and adapt to changes in customer behavior or economic conditions.

A Way Forward

Accounts receivable managers often face challenges in handling a large number of collections activities. Manual processes are not only time-consuming but also prone to errors. Managing multiple customers, and keeping track of outstanding amounts, due dates, and accounts requiring attention can become complex.

Automation tools offer precision and efficiency that manual methods lack. They ensure timely customer reminders, reduce missed deadlines, and provide real-time payment tracking for quick dispute resolution. Automation also streamlines workflows, minimizing the risk of costly errors and ensuring a systematic approach to bad debt collection. As transaction volumes increase and the demand for faster responses grows, automation is becoming standard, empowering AR managers.

With Peakflo’s Collections Task Management , AR managers can work smarter and more effectively. Our solution provides:

• Customizable roles-based access and permissions.
• Empower different teams to work together
• Design and trigger actions for team members to execute.
• Create reminder templates that automatically fill in the information, saving valuable time for your team that’s spent on manual data entry.
• Seamless collaboration among the collection, finance, and sales teams.
• Tracking of all messages received/sent to the customer, payment history, and collaboration with teammates through the customer timeline.
• Reassign customers to different collection workflows based on Peakflo’s AI-powered payment behavior report.
• Check the last customer activity details and date from the report to better gauge the next steps
• Get a week-over-week analysis of collections health and an overview of sales and finance team pending actions.
• Track collections KPIs through the “Team Activity Report” to understand each team member’s collections and overdue amounts, monitoring pending or completed actions.

Check out Peakflo’s Accounts Receivable solution to accelerate payment recovery and reduce DSO.

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Developing a timely approach to billing and collecting payments from customers is critical to maintaining your company's financial strength. Here are some helpful tips that can shorten your collection cycle and improve your company’s cash flow:

Know Your Customers

Working with people you trust is the most important aspect of collections. When taking on a new customer, you should check that company’s credit rating and payment history. You should also ask for credit references.

Invest in Technology

If poorly organized, collecting from customers can be a time-consuming process. Shop around for computer software that can help you streamline aspects like recurring billing, electronic invoicing and communication with customers. There are many affordable options for accounting software. Ultimately, the right technology can drive revenue to your business. For more information on the kind of software that might be right for your company, read our article, "How to Run a Business from Your Mobile Device."

Establish and Communicate Payment Terms

You need to set up credit policies that will motivate customers to pay promptly and consistently. Those terms should be provided to the customer and agreed upon before services are rendered. Payment terms that are too strict can lower sales, while more lenient policies might slow customer payments. A good rule is to require payment within 30 days. If it fits into your business plan, you can motivate customers to pay you more quickly by offering a small discount (for example, a 2% discount for payment within 10 days). Another alternative is factoring. Many factoring companies will charge less than 2% and buy your invoices daily.

Bill Promptly

The receivables clock starts ticking when you deliver a product or service. For your customer, it starts only after they get an invoice. Waiting a few days to send out invoices slows the process even more. The solution is simple: the sooner you mail invoices, the faster you will get paid.

Create a Process and Stick To It

The ability to consistently follow up with customers about unpaid invoices is critical to your company’s stability. The most effective approach may vary depending on the industry, but most companies follow up with a phone call or email to their customers after 30 days. Other steps in the process can include re-invoicing, late payment penalties and enlisting a collection agency. Establish a collections process that is most effective for your business and remain diligent in executing it.

Don’t Let Receivables Build Up

Accounts receivable may have a dollar value, but they cannot help your company until the customer pays. To ensure you have enough cash to fuel your operations, do not carry too many unpaid receivables on your books. You may also consider factoring as a way to quickly turn those accounts receivable into working cash.

How To Make Customer Collection Calls

No one enjoys making a phone call seeking an overdue payment from a customer. Still, collection calls are a necessary part of doing business. Doing them the right way can solidify your cash flow and help your company meet its own expenses. Developing a technique for handling these calls will help you collect quickly on past-due payments. You should also try to anticipate how a customer will react to your call. Some customers may be apologetic while others can be defensive or angry. Some customers may even try to win your sympathy. Below are some common excuses you can expect from customers on why they have not paid on time, along with suggestions on how to respond. At all times your tone should be courteous and professional. You are not trying to win an argument. You are just trying to get paid.

Customer Excuse #1:

“I didn’t receive your invoice.”

Your Response:

“I’m sorry about that. Let me go over your contact information to make sure it is correct and we can send the invoice out again.” This may be a legitimate reason for nonpayment. Your response shows you are giving the customer the benefit of the doubt. It also tells the customer that you are diligent with your collections and they can expect to receive an invoice soon.

Customer Excuse #2:

“We already cut you a check for that.”

“Good! What day did you mail it? What is the check number and when can we expect to receive it?” This customer excuse can be misleading. Some debtors may cut a check for an invoice, then hold on to that check until they have more cash on hand. Your response requires the customer to confirm whether the check was mailed or not. If it has not been mailed, your next step is to get the customer to commit to a date when they will send you the payment. Let the customer know that you are documenting that commitment and will follow up if it is not met.

Customer Excuse #3:

“Sorry, but we just don’t have the money to pay you.”

“I’m really sorry to hear that. We want to work with you on this. Is there a time when you will be able to pay us?” If a customer confesses to you that they simply cannot pay, express empathy but focus on a pathway to payment. Emphasize that your company wants to find a workable solution for both parties. That might mean breaking the invoice down into smaller payments. A customer may not be able to pay $5,000 at once, but perhaps they can pay $500 a month over 10 months. In some cases you may need to accept less payment than was originally charged. Avoid getting into a dispute and broker a deal that will salvage at least some money for your company.

Customer Excuse #4:

“We have an issue with the amount you charged.”

“Let’s talk about that. I have all the documentation right here in front of me. Do you have a minute to walk through everything that happened on the job?” Be courteous but firm. Let the customer know you have all the information at hand and are knowledgeable about the work performed. If the customer has a legitimate complaint, try to address the concerns. You may even agree to knock some charges off the account. However, let the customer know that a new invoice will be mailed out right away. Encourage your customers to call you at any time with an issue rather than waiting for your company to call them.

Customer Excuse #5:

“You didn’t get our payment? I don’t know what happened. I’m going to have to look into this and get back to you.”

“Okay, when do you think you can get back to me? If it’s easier, I can be sure to call you again tomorrow. Let me know when would be a good time for us to talk.” “Let me get back to you,” is a common dodge that late-paying debtors employ. How you respond to this excuse is critical. Do not settle for a promise to call you back. Make sure that the customer understands that if you do not receive an answer, you will call again tomorrow. In fact, you will be calling the customer every day until the payment issue is resolved.

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Home > Blog > Empathy in Action: A Guide to Revolutionizing Billing and Collections With Exceptional Customer Service

Empathy in Action: A Guide to Revolutionizing Billing and Collections With Exceptional Customer Service

Sending and receiving invoices is a crucial point of contact between customers and their chosen brands. How buyers receive their billing statements, the ease of making payments, and how billing disputes are handled can influence how they view your business.

U.S. businesses must view the billing and collections process as integral to the customer experience to foster and maintain good buyer relationships. Doing so involves familiarizing themselves with today’s consumer challenges, from high debt levels to the complex healthcare billing system.

Addressing challenges in billing and collecting from individuals facing financial difficulties involves incorporating empathy and exceptional customer service into the approach. 

By understanding and acknowledging the financial struggles of customers, businesses can cultivate a more positive relationship. Offering flexible payment plans, clear communication, and personalized assistance can ease the burden on individuals experiencing financial hardships. 

Compelling Statistics About US Consumer Debt (and How It Affects Billing and Collection Services )

One of the most pressing challenges your billing and collection department may face is finding a balance between speeding up the invoicing process and showing empathy toward customers with financial struggles. Studies have found that American consumers have taken on more debt than ever.

Skyrocketing Household Debt

According to a Forbes study, U.S. families have accrued $17.06 trillion in household debt, with over $1 trillion owed to credit cards, as of the 2nd quarter of 2023. These sky-high figures show record-high debt levels, suggesting that many consumers are stretching their budgets too thin and may soon struggle to keep up with payments.

The U.S. consumer debt crisis mainly affects young adults , who face lower wages and much shorter credit histories. An Urban Institute report found that about one in five Americans between 18 and 24 struggle to pay debts incurred from credit cards .

Growing Medical Debt

Healthcare is among the sectors with the highest level of consumer debt, with over 73% of Americans owing money to hospitals. An Urban Institute report found that 63% of patients incurred past-due medical debt despite having health insurance, and 16% initially had coverage but lost it.

Today’s more expensive healthcare system may cause growing medical debt. According to a recent study, average family health insurance premiums have increased by 47% since 2011, outpacing wage increases (31%) and inflation (19%). 

More consumers are also paying medical bills with their savings. In 2021, consumer out-of-pocket healthcare spending rose to $491.6 billion, growing 10% more than the previous year. Industry experts foresee this figure rising through 2026, gaining a continued growth of 9.9% annually.

Top 6 Factors Fueling Bills and Collections Challenges

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Navigating billing and collections in the United States proves challenging due to the intricate landscape of its debt economy. High levels of consumer debt, compounded by the complexity of healthcare billing systems and stringent regulatory frameworks, create hurdles for businesses aiming to collect payments efficiently.

High Consumer Debt Levels

In previous sections, we mentioned that the U.S. has substantial consumer debt, including credit card debt, student loans, mortgages, and more. The record-high debt levels have created significant challenges for even the most experienced billing and collection specialists since more and more buyers have struggled to pay their bills on time.

According to the Quarterly Report on Household Debt and Credit, total household debt in the U.S. reached $17.29 trillion in Q3 of 2023, growing by 1.3%. The highest unpaid balances belong to mortgages ($12.14 trillion), credit cards ($1.08 trillion), and student loans ($1.6 trillion).

Complex Medical Billing System

Another factor complicating the billing and collections process is the country’s medical billing system. Previously, we mentioned how more than half of all Americans have unpaid medical bills due to rising healthcare costs, but another issue complicating the medical debt crisis is the rise in billing errors .

The Medical Billing Advocates of America estimates that 8 out of 10 hospital bills contain errors. Inaccurate billing statements, often caused by improper data entry, cost the healthcare industry $68 billion annually.

Medical billing in the U.S. is notoriously complex, so having dedicated professionals handle this process is critical. Ideally, a hospital, clinic, or healthcare institution’s billing and collections department must work closely with medical billing and coding specialists to avoid billing errors, disputes, and delayed payments.

Regulatory Environment

Beyond sending invoices on time, complying with government regulations is among businesses’ billing and collection duties and responsibilities . The U.S. has stringent regulations governing debt collection practices to protect consumers. While these rules are essential for consumer rights, they add complexity to collecting debts.

One regulation your billing and collections department must follow is the Fair Debt Collection Practices Act (FDCPA). This regulation aims to protect consumers from abusive or deceptive debt collection practices. It limits what a debt collector can do when attempting to collect payments and gives customers the right to dispute the debts listed in their credit reports.

Economic Volatility

Changes in the economy can also create challenges for billing collections specialist jobs . Economic downturns, recessions, and job losses can significantly affect individuals’ ability to pay bills, leading to higher delinquency rates and difficulties in collections.

Studies have found that most American adults (82%) own a credit card, but not everyone can pay their balance on time, especially amid a volatile labor environment. Economists attribute the recent rise in credit card delinquencies to widespread job losses during and after the COVID-19 pandemic, averaging near the 2007-2009 global financial crisis.

Technology and Infrastructure

While technology has advanced, some industries or businesses still use outdated billing systems or lack the infrastructure to streamline collections effectively. 

The truth is that many executives prioritize front-end innovations when accelerating digital transformation, neglecting core systems like billing and collections. However, the invoicing process is a core part of the customer experience, and overlooking it can limit business growth and lead to billing disputes and delays.

According to an Ernst & Young study, companies lose 1% to 5% of earnings before interest, taxes, and amortization (EBITA) due to inefficient invoicing and payment follow-up processes. By investing in technological advancements and infrastructure for the debt collection service , companies can improve their bottom line while providing more consistency and better customer service.

Cultural Attitudes Towards Debt

In the U.S., there are prevalent negative attitudes toward credit and debt, which can impact payment behaviors. Some may prioritize certain debts over others, leading to challenges in collecting outstanding balances.

Studies have found that a person’s attitude toward debt may be related to their household’s debt levels. Consumers who reported being uncomfortable with debt were shown to have significantly lower debt levels, regardless of socioeconomic status.

Among households with lower incomes , people reported higher levels of anxiety over paying their bills (65%), saving for retirement (60%), their amount of unpaid debt (58%), and healthcare costs (55%). In comparison, only 4 out of 10 middle-class and higher-income households have those same worries.

Legal Procedures

Another challenge faced by billing and collections specialists is the complex U.S. legal system. Often, the legal process for debt collection can be time-consuming and expensive. Businesses might face hurdles in recovering debts through legal channels, further complicating the collection process.

Transforming Billing and Collections Services With Empathetic Customer Care

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Now that we’ve discussed the challenges consumers face that affect billing and collections, let’s discuss how focusing on customer service can help businesses optimize their invoicing processes.

Many business owners think of the billing process as a one-time transaction, but the truth is that it should be a critical part of your overall customer experience strategy. Investing in billing and collections can help nurture client relationships and improve loyalty and retention.

Prioritize Personalized Communication

Standardized reminders often get lost in the clutter of emails. Think about how often you delete spam messages without glancing at their content.

If you send all customers the same automated emails, many might overlook your message and send it straight to the trash folder. To avoid this problem, personalize your payment reminder and follow-up emails, tailoring your communication strategy to each customer’s unique situation.

According to a Zendesk report, 54% of customers expect all brand interactions to be personalized – and the billing and collections process should be no different. Personalization shows your buyers that you value them as individuals and want to build a relationship with them beyond the surface level.

A personal touch can go a long way in nurturing goodwill. Understand your customers’ needs and circumstances and communicate with them in a personalized, empathetic manner. 

Show them that you recognize what they’re going through and that you are committed to working together to resolve payment issues. And as much as possible, use precise language, avoid jargon, and offer various communication channels (phone, email, chat) to accommodate preferences.

Ensure Transparency and Clarity

Transparency is crucial for billing and collections because it prevents disputes, misunderstandings, and confusion. Provide a detailed breakdown of costs when sending invoices and compile it in an easy-to-read format that explains all complex terms and upfront charges.

Once you’ve received payment, ask for feedback from customers about their billing \ and collections experience. Then, use this feedback to refine and improve systems continually. Actively listen to suggestions for improvement and implement changes accordingly.

Provide Flexible Payment Options

As mentioned earlier, many customers may have unpaid balances because of temporary financial difficulties caused by factors beyond their control. In these cases, businesses should show empathy by providing more flexible payment terms.

For example, companies can ask buyers to send in smaller, partial payments over a certain period instead of asking for a large upfront sum. Providing greater flexibility in your payment plan can show customers, especially those with challenging financial circumstances, that you are willing to work with them and care about their well-being.

Remember: Billing and collections are not just about completing a one-off transaction. By providing more flexible and convenient payment options, you can nurture customer relationships and earn loyalty.

Foster Empowerment Through Information

Sometimes, the best way to encourage timely payments is by providing the correct information upfront. Ensure your buyers understand the cost of goods and services, payment timelines, late fees and penalties, and other relevant charges.

Educate customers about their billing and payment options. Provide resources or guidance on managing their accounts, understanding charges, and utilizing available support services. 

By communicating this information openly, you can avoid confusion, frustration, and potential conflicts while ensuring a smoother and hassle-free collection process.

Offer Proactive Customer Support

A lot of people may not see debt collection as part of customer service, but the truth is that billing and collection should be part of a holistic CX strategy. According to a Helplama study, 89% of customers were pleasantly surprised when their chosen brands provided proactive customer service .

So, billing and collection specialists shouldn’t wait until the last minute to send reminders about overdue balances. Instead, they should proactively address potential billing issues, contact clients before payment is due, and offer assistance and information.

Suppose there are any unexpected changes, sudden additional costs, or other urgent problems concerning their billing status. In that case, specialists must also be proactive in notifying customers about them and listening to their feedback and concerns.

Handle Disputes With Empathy

For some customers, unpaid bills may be caused by a simple miscommunication. Perhaps, they weren’t told about certain miscellaneous charges and were confused about the extra cost. Maybe they didn’t know which payment methods were available, or, in many cases, they didn’t receive an invoice and forgot.

As much as possible, be empathetic when following up with customers about their unpaid balances. Handle disputes or discrepancies with kindness and a willingness to understand the customer’s perspective. Make sure to promptly address concerns and aim for fair resolutions, prioritizing maintaining the customer relationship.

Utilize Technology Wisely

Another strategy to optimize the invoicing process is by utilizing the right technologies. Many businesses still use legacy billing systems that lack flexibility, don’t seamlessly integrate with more advanced networks, and create numerous inefficiencies. 

Instead of sticking with these outdated systems, companies can leverage technology to streamline billing processes, automate reminders, and offer self-service options for customers to manage their accounts. They must also ensure these tools are user-friendly and complement human interaction rather than replace it entirely.

Celebrate Customer Successes

Finally, the best way to encourage timely payments and foster brand loyalty is by rewarding customers who settle balances early or on time. You can provide incentives, such as discounts or extended credit terms, to encourage buyers to make prompt payments and help them develop a more positive association with your business.

By acknowledging and celebrating customers for meeting their financial obligations, you show an appreciation for their efforts and express that you value their business. In turn, you reinforce positive behaviors and strengthen the overall customer-brand bond.

Discover the Power of Exceptional Customer Service in Billing and Collections

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Are you hoping to revolutionize your billing and collections processes? Partner with the outsourcing professionals at SuperStaff.

Here at SuperStaff, we are dedicated to helping you provide better customer care by developing a seamless, hassle-free billing and collection system. We have a team of specialists who can handle various financial services, including billing and collections, accounts payable , accounts receivable , and more.

Our BPO company also provides 24/7 customer support so your clients can inquire about their balance or resolve billing disputes no matter the time or day. Contact us to learn more about our comprehensive solutions.

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Creating An Effective Commercial Collections Plan

Every business faces unique collections challenges. For companies operating mainly on business-to-business transactions, they often encounter different hurdles when it comes to maintaining profitability.

Whether you run a small business or a Fortune 500 company, it is important to adopt different strategies to ensure your accounts receivable is well-managed, and you are receiving consistent payments from your customers.

What Is The Difference Between B2C And B2B Collections?

One of the biggest differences between collections for business-to-consumer (B2C) and business-to-business (B2B) collections is who you are collecting from. With B2C transactions, typically, there is no gap between the business and the customer. In most cases, payments are made at the time of the purchase, or a payment plan is agreed upon.

B2B transactions are often more nuanced, as customers likely receive different product packages, contract terms, and desired outcomes. In addition, as a creditor, you are not dealing with a single customer, but rather a representative from the accounts payable department.

Tips for Creating Successful Commercial Collections

Stay proactive with outreach.

One of the most important factors in building a successful business is maintaining strong relationships with your clients. Maintaining consistent communication and outreach with your clients can help facilitate payments and prevent non-payment.

Establish Consistent Billing & Collections Policies

Making sure your accounts receivable team has a clear procedure for collecting payments can have a dramatic impact on your bottom line. Work with your team to establish collections procedures for what happens right after a transaction occurs, when payment is due, and when an account becomes delinquent.

Make Statements & Invoices Easy to Understand

We have all been on the receiving end of an invoice that doesn’t quite make sense. Taking the time to give your billing statements a clean design can help facilitate on-time payments and decrease misunderstandings about your invoicing. Some ways to improve your invoices are:

Make due dates clear and apparent on all documentation. Make sure your contact information is available on both paper and digital invoices. Include clear explanations of the charges the client is responsible for paying. Clearly outline the goods and services provided — avoid using internal abbreviations and jargon.

All of this information helps to create a more transparent invoicing system and provides your clients with a clear explanation of what is expected of them.

Establish Payment Plans

For many clients, spreading out payments monthly or quarterly can lessen the burden on their business while providing you with consistent cash flow for your services. Receiving payment in one lump sum is preferable, but providing your clients with flexible payment plans can strengthen your relationships with your clients and ensure each account is paid in full.

Know Your Limits

Managing and collecting on delinquent accounts can turn into a full-time job for your staff. While every business experiences ebb and flow throughout the fiscal year, it is important to identify if your clients’ hardships are going to cause issues for your business.

Working with a commercial collection agency can reduce the burden on your staff and increase the likelihood of receiving full payments. Agencies like Kinum, Inc. are wholly focused on providing businesses with comprehensive, cost-efficient methods to recover profits and reduce instances of non-payment.

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Kinum, Inc. works with a variety of commercial clients and industries . To receive more information about how we can improve your debt collection efforts and our process, please give us a call at 888-471-0280 today.

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• The Accounts Receivable Process –...

The Accounts Receivable Process – a Step-by-Step Guide [Data + Templates]

Table of Content

Key takeaways.

• Discover the 8-step accounts receivable process roadmap t ensure a healthy cash flow.
• Explore key performance indicators (KPIs) to gauge the efficiency of your accounts receivable operations.
• Understand the challenges of traditional accounts receivable practices and identify opportunities for automation and efficiency gains.

Introduction

If you’re involved in finance or run a business, you know that accounts receivable isn’t merely a line item on your balance sheet. It’s essential for maintaining a healthy cash flow, which is crucial for your business’s sustainability.

Yet, managing it effectively can be a complex task fraught with challenges—from delayed payments to reconciliation errors.

In this practical guide, we’ll walk you through what accounts receivable is, accounts receivable process steps, and the key performance indicators for successful accounts receivable procedures. 

Additionally, we will be sharing free accounts receivable templates with you to make implementation easier. Let’s get started.

Before we jump into the accounts receivable process, let’s clarify what accounts receivable is to make sure we know the basics.

What is Accounts Receivable?

Accounts receivable refers to the outstanding invoices your company has, which represent the money owed to you by customers for goods or services that have been delivered but not yet paid for.

Think of it as a short-term IOU from your customers. Managing accounts receivable effectively is crucial for cash flow, as it represents revenue that you’ve earned but haven’t collected. It’s an asset on your balance sheet that you’ll want to convert into cash as quickly as possible.

What is the Accounts Receivable Process?

The accounts receivable (AR) process is a systematic set of actions that businesses follow to invoice clients, track payments, and collect funds owed for goods or services provided. It acts as a connection between sales and revenue, ensuring that transactions are completed through timely payments.

This process is essential for converting sales into actual revenue, which is vital for the financial health and growth of a business.

To fully understand the process, you need to be familiar with all the steps, which we will cover in detail in the ‘Accounts Receivable Process Steps’ section.

Why is the Accounts Receivable Process Important?

The accounts receivable (AR) process is far more than just a set of administrative tasks; it’s a critical component of your company’s financial health. While the core activities may seem straightforward—

• Sending out invoices
• Managing collections
• Processing payments
• Posting them to your Enterprise Resource Planning (ERP) system

—Each of these tasks can be highly intricate, especially if your AR team is navigating manual workflows.

It’s not merely about keeping tabs on individual transactions; in the broader context, the AR process is about cultivating ongoing relationships and securing a consistent cash flow.

The 8 Accounts Receivable Process Steps

Below, we break down the process into 8 comprehensive steps, providing you with a roadmap for effective AR process management.

Step 1: Customer Order Placement

When a customer decides to make a purchase, they’ll typically send a purchase order . Upon approval, a sales order is generated, which serves as a binding agreement detailing the goods or services, their quantity, price, and other terms of the sale. Before proceeding, it’s crucial to assess the customer’s creditworthiness.

Step 2: Credit Approval

Before you even send out an invoice, it’s crucial to assess the creditworthiness of your customers. This is especially important if transactions involve significant sums and extended payment terms.

A thorough credit application process is essential to assess the credit risk associated with each customer. Based on your company’s credit policy , you may approve or deny credit, or suggest alternative payment methods. Also, this process may vary depending on whether it’s a new or existing customer.

New Customers: 

Implement a credit application process that aligns with your company’s documented credit policy. This process may take a few days and should assess the customer’s financial stability and payment history.

Related Read: How to Assess the Creditworthiness of a New Customer: Step-by-step Guide

Existing Customers: 

Periodically review the credit terms for existing customers, especially if their order volume increases or their payment behavior changes. This ensures that you’re not exposing your business to unnecessary risk.

Step 3: Invoice Dispatch

An invoice serves as the definitive record of a customer’s purchase, outlining how much is owed and the payment due date. The quicker you can send out the invoice, the sooner your payment terms begin, so it’s beneficial to automate this step as much as possible.

Step 4: Collections Management

Late payments are an unfortunate reality. A structured collections process helps in following up with customers who have overdue invoices. The frequency and nature of these follow-ups can vary based on the customer’s payment history and the amount due.

Below are some time frames commonly used by companies for carrying out their collections outreach:

Step 5A: Writing Off Uncollectible Debts

When you’ve exhausted your outreach efforts (including passing off the debts to a collection agency or legal counsel) and determine the payment is uncollectible, you’ll write off the receivable as bad debt.

The timing for this can vary by industry and should be in line with your company’s financial policies. For some industries, like transportation services, for example, an average days sales outstanding (DSO) of above 50 days is normal. If late payments are common in your line of work, it makes sense to wait before writing off an invoice as bad debt.

Step 5B: Payment Processing

Business buyers pay their invoices in several ways, including:

• Wire transfer
• Debit, credit, or virtual card

Efficiently processing these payments is essential for accurate financial records.

Businesses that want to accept payments online will need a payment processor, payment gateway, and at least one merchant account, not to mention a platform to support e-commerce or self-service customer payments. Some payment service providers will wrap all of this up into one offering.

Most B2B businesses still accept a significant volume of paper checks, with a recent survey by AFP pointing to 92% of organizations continuing to use checks for incoming payments. To support this, businesses will often resort to managing multiple lockboxes (where a bank receives and processes checks for you).

Note that although lockbox services eliminate the need for you to receive checks at your office, they don’t take away the effort involved in processing them. Going through lockbox files to apply payments to invoices still takes work.

Step 6: Cash Application

Once a payment is received, it needs to be posted to the corresponding invoice(s). However, this process can sometimes be challenging due to factors such as missing remittance advice or discrepancies between the provided payment information and open invoices.

Related Watch: 3 Cash Application Best-Practices

Step 7: Dispute Resolution

Invoice disputes can delay payments significantly. If a customer raises an issue, it’s crucial to initiate the dispute resolution process promptly to prevent further delays and maintain good customer relations.

Customers will often pay the portion of their invoice that’s not in dispute (a short payment), which adds another layer of complexity for your AR team. They’ll have to confirm why the short payment happened, whether it was for a valid reason, and how to apply the payment in your accounting system.

Step 8: Reporting and Analytics

During the month-end close process , your finance team will check that they’ve recorded all transactions and put the closing balance of all general ledger accounts into a report (a trial balance). This allows you to put together financial statements for that period to report to the rest of the company.

Regular reporting on the status of your accounts receivable is crucial for financial planning and for assessing the effectiveness of your AR process. Metrics like Days Sales Outstanding (DSO) and Collections Effectiveness Index can provide valuable insights.

7 Key Performance Indicators for Successful Accounts Receivable Procedures

When it comes to evaluating the success of your accounts receivable process, it’s essential to focus on tangible business outcomes. These outcomes not only measure the efficiency of your AR operations but also directly impact your company’s bottom line. 

Here are the key performance indicators that signify a successful accounts receivable process:

Timely Invoicing

Prompt invoicing sets the stage for all subsequent steps in the AR process. It not only establishes payment terms but also greatly influences the speed at which payments can be collected. By ensuring invoices are sent promptly, you set a positive foundation for the entire payment collection process, enabling your business to receive payments promptly.

Collections Efficiency Index (CEI)

A high CEI indicates that your collections team is effective in recovering receivables. It’s a crucial metric that directly correlates with your cash flow and liquidity.

Days Sales Outstanding (DSO)

A low DSO means that your company takes fewer days to collect payments from customers. This is a vital indicator of operational efficiency and cash flow management.

Reduction in Bad Debt

Minimizing bad debt shows your AR process is working. It means that your credit policies are effective and that you’re doing a good job of vetting customers’ creditworthiness.

Reduction in % AR Open

A lower percentage of accounts receivable remaining open indicates that more invoices are being settled, which in turn improves your cash flow and financial stability.

Accurate Record-Keeping (Cash Reconciliation)

Meticulous record-keeping is non-negotiable. Accurate and timely cash reconciliation is crucial for financial reporting and compliance. It also aids in dispute resolution and enhances customer satisfaction.

Automation and Scalability

As your business grows, your AR process should be able to scale with it. Automation tools can help reduce manual errors, speed up the invoicing process, and provide real-time analytics.

Traditional vs. Modern Accounts Receivable

The accounts receivable landscape has undergone significant changes over the years, particularly with the advent of automation technologies. While traditional methods have their merits, modern automation offers a plethora of advantages that can dramatically improve efficiency and accuracy.

Below, we compare the two approaches to highlight their differences:

How Automation Streamlines the Accounts Receivable Process

The advent of automation has revolutionized the accounts receivable landscape, offering a host of benefits that streamline operations, reduce errors, and enhance customer satisfaction. Here’s how automation is making a significant impact:

Faster Invoicing

Automation allows for the instant generation and dispatch of invoices as soon as an order is confirmed via their preferred method—be it email, EDI, or even traditional mail. This not only speeds up the invoicing process but also sets the stage for quicker payments.

Automated Collections

Gone are the days of manual follow-ups for overdue payments. Automation enables you to automate the entire collections management workflow, from segmenting customers and prioritizing accounts to auto-sending correspondences based on the payment terms, significantly reducing the time and effort involved in collections.

Real-Time Payment Processing

Automated payment gateways facilitate real-time payment processing , which means you get to update your records instantly and improve cash flow. It supports multiple payment methods, including ACH, wire transfers, and credit cards, providing both you and your customers with flexibility.

Accurate Record-Keeping

Automation ensures that all transactions are recorded accurately and in real-time. This is particularly beneficial for cash reconciliation, wherein it automatically matches payments to open invoices, even when remittance information is missing or incomplete. This ensures that your records are always accurate and up-to-date.

Advanced Reporting and Analytics

Automation provides advanced reporting features, including real-time analytics. With predictive analytics, you can forecast cash flows, analyze customer payment behavior, and even predict potential bad debt, enabling data-driven decision-making.

Better Customer Experience

Automation enhances the customer experience by offering self-service options and instant pre-built responses. Customers can view invoice statuses, make payments, and raise disputes or queries, all through automated customer portals.

Cost Savings

By reducing manual labor and errors, automation can result in significant cost savings. The initial investment in an automated system is often quickly offset by the long-term benefits.

Enhanced Scalability

As your business grows, automation allows your accounts receivable process to scale seamlessly. You can handle a larger volume of transactions without a proportional increase in manpower or resources.

Elevate Your Accounts Receivable Process Flow with HighRadius

In a tight economic landscape, optimizing your accounts receivable process cycle is essential. Reducing DSO improves liquidity and frees up capital for business growth.

Why Choose HighRadius for Your AR Transformation?

HighRadius’s autonomous receivables offers a robust set of solutions designed to streamline and accelerate each stage of the accounts receivable cycle. Here’s how we can make a difference:

A Unified, Cloud-Based AR Platform

What distinguishes HighRadius is our integrated, cloud-based platform. This unified solution enables customers to:

• View invoices in real-time
• Make secure payments
• Engage directly with your team

The result? A streamlined accounts receivable process and an enhanced customer experience that fosters long-term relationships.

There’s much more to explore. Click here to learn more and dive deeper into how HighRadius can revolutionize your AR process.

What is the accounts receivable workflow?

An accounts receivable workflow outlines the steps for managing customer invoices from issuance to payment and reconciliation. It often includes invoicing, collections, payment processing, and cash application.

What is an aging report in accounts receivable?

An aging report categorizes accounts receivable by the length of time an invoice has been outstanding. It helps businesses identify overdue accounts and assess the effectiveness of their collections process.

How do you calculate accounts receivable turnover?

Accounts receivable turnover is calculated by dividing the net credit sales by the average accounts receivable during a specific period. It measures how efficiently a business collects its receivables.

Why do we manage accounts receivable?

Managing accounts receivable is crucial for maintaining healthy cash flow, minimizing bad debts, and fostering positive customer relationships. It directly impacts a company’s liquidity and financial health.

What is the difference between accounts receivable and accounts payable?

Accounts receivable represents money owed to a business for goods or services sold. Accounts payable is money a business owes to suppliers for goods or services purchased.

How do you track or monitor accounts receivable?

Tracking accounts receivable often involves using specialized software to monitor invoice statuses, payment due dates, and collections efforts. Key metrics like DSO and aging reports are commonly used.

How can small businesses manage accounts receivable effectively?

Small businesses can manage accounts receivable by issuing invoices promptly, setting clear payment terms, actively pursuing collections, and regularly reviewing key performance metrics.

If you want to learn more about how HighRadius can help your business achieve these benefits, talk to our experts today.

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The HighRadius RadiusOne AR Suite is a complete accounts receivable’s solution designed for mid-sized businesses to put their order-to-cash on auto-pilot with AI-powered solutions. It leverages automation to fast-track key accounts receivable functions including eInvoicing & Collections, Cash Reconciliation , and Credit Risk Management powered by RadiusOne AR Apps to improve productivity, maximize working capital, and enable faster cash conversion. Affordable, quick to deploy, and functionality-rich: it is pre-loaded with industry-specific best-practices and ready-to-plug with popular ERPs such as NetSuite and Sage Intacct. The HighRadius RadiusOne AR Suite is designed to automate labor-intensive processes while streamlining credit and collections activities for faster AR processing, better cash flow and improved profitability.

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Billing and Collection Flow Process

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• Solving Law Firm’s Biggest Problem: Outsourcing Legal Billing to Improve Collection and Profitability

Streamlining and improving the billing process in law firms is often perceived as a daunting task, fraught with complexities that can challenge even the most seasoned legal professionals. Billing is a time consuming, labor-intensive necessary evil that is often fraught with inaccuracies due to inefficiencies in process and extensive operational silos which can cost a law firm potentially millions of dollars each year.

According to a recent Thomson Reuters survey , the average law firm experiences an 18% realization loss due to billing challenges. This means that nearly one-fifth of billable work is not converted into revenue, negatively impacting the firm’s profitability. 81% of law firms report issues with a significant portion of invoices remaining unpaid or delayed, creating cash flow challenges. This is a huge revenue loss that is creating major problems for law firms, but there are solutions.

Why is legal billing so complex?

Most unique to attorneys is that their work is often time-consuming difficult to tangibly track. Tracking billable hours accurately requires meticulous attention to detail and can be particularly challenging when dealing with tasks that don't neatly fit into predefined categories. This creates problems because clients often have unique billing preferences and expectations ranging from traditional hourly billing to flat fees, contingency fees and/or blended rates. Accommodating these distinctive preferences for each client and integrating them into a billing system adds a layer of complexity to billing that makes it extremely labor intensive. Additionally, silos that exist within law firms in the form of practice groups or other operational units can make regularity in billing guidelines either difficult to understand or completely nonexistent.

Another complexity in legal billing is the regulatory compliance and ethical guidelines that must be adhered to. Some of these issues include fee agreements, billing transparency, client confidentiality, and conflicts of interest. Staying compliant with these regulations while meeting client expectations and maintaining profitability requires a thorough understanding of legal and professional standards.

While most law firms rely on billing software to streamline the process, integrating these systems with other practice management tools and ensuring data accuracy and security can present technical challenges that require ongoing maintenance and support.

Reasons to outsource billing

By streamlining the billing processes , law firms can reduce the risk of errors, and focus on core competencies. Technical expertise and best practices ensure process optimization and service quality. Outsourcing can be a valuable solution for law firms aiming to stabilize their cash flow, reduce costs, and improve overall efficiency.

• Access to Advanced Technology: Outsourcing billing often provides access to advanced billing technologies and software platforms that may be cost-prohibitive for smaller law firms to implement independently. These technologies can automate billing processes, provide real-time reporting and analytics, and offer insights into billing trends and patterns that allow firms to optimize their billing practices for greater efficiency and profitability Additionally, predictive AI can provide billing staff with powerful tools to wade through complex billing guidelines in a timely manner, increasing productivity within billing departments.
• Expertise and Accuracy: Billing processes can be complex, especially in law firms where billing requirements may vary from client to client and case to case. Outsourcing billing to specialized professionals ensures that billing is handled by experts who are well-versed in legal billing practices. This expertise leads to greater accuracy in invoicing, reducing the likelihood of errors or discrepancies that could lead to disputes or delays in payment. This also leads to more standardized output.
• Centralization: Often, billing departments in law firms are segregated either geographically or by practice area, leading to inefficiencies and lack of scalability. Centralizing billing can assist by allowing billing to be looked at holistically as a firm rather than piecemeal, leading to a more effective business model for financial processes.
• Efficiency and Timeliness: Outsourcing billing allows law firms to streamline their billing processes and improve efficiency. Billing professionals have the necessary tools and systems in place to generate invoices promptly and ensure timely submission to clients. This helps expedite the payment cycle, leading to improved cash flow for the firm.
• Cost Savings: While some may initially view outsourcing as an additional expense, it often proves to be a cost-effective solution in the long run. By outsourcing billing, law firms eliminate the need to hire and train in-house billing staff, invest in billing software, and bear the overhead costs associated with maintaining billing infrastructure, lowering both soft and hard operational costs and simplifying a billing budget. Additionally, outsourcing billing allows firms to scale their billing operations up or down as needed without incurring significant fixed costs.
• Compliance and Regulation: Legal billing is subject to various regulations and compliance requirements, including those related to client confidentiality, billing transparency, and fee agreements. Outsourcing billing to professionals who are experts in these regulations helps ensure compliance and mitigates the risk of potential legal or ethical issues arising from billing practices.
• Focus on Core Competencies: Attorneys and legal staff excel in providing legal counsel and representation, but are not usually trained in managing billing and administrative tasks, and even if they are, legal staff turning their attention to these tasks from an administrative perspective harms the firm’s bottom line by taking time away from client-facing, billable projects. By outsourcing billing, law firms can free up valuable time and resources to concentrate on what they do best, which is serving clients legal needs.
• Enhanced Client Satisfaction: Timely and accurate billing contributes to a positive client experience. By outsourcing billing , law firms can ensure that clients receive clear, transparent invoices in a timely manner, enhancing client satisfaction and fostering long-term client relationships.

Legal billing is a challenge that costs firms millions of dollars every year. It has become such an issue that many of law firms have said this is their main priority to fix by 2025. Centralized teams face challenges due to the varied requirements of different attorneys and clients. The benefits to outsourcing billing not only will help realization rates but will foster a better relationship with clients and will help alleviate headaches of both lawyers and legal administrators as well.

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• 3 Myths About Law Firm Billing: The In-House Edition
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Sony and Apollo Move Ahead With Paramount Bid Process but Reticent About Earlier Plan, NYT Reports

FILE PHOTO: The logo of Paramount Pictures studios is pictured after the Writers Guild of America (WGA) said it reached a preliminary labor agreement with major studios in Los Angeles, California, U.S., September 24, 2023. REUTERS/David Swanson/File Photo

(Reuters) - Sony Pictures Entertainment and Apollo Global Management have signed nondisclosure agreements that will allow them to look at Paramount's books ahead of a potential bid for the movie studio's assets, the New York Times reported on Friday, citing people familiar with the matter.

The companies are, however, backing away from an initial plan to make an all-cash $26 billion offer for Paramount, the newspaper said.

Reuters reported this month that Paramount was in talks to open its books to a consortium of the Sony movie unit and the U.S. buyout firm. CNBC later reported that Sony was rethinking its bid, sending Paramount's shares tumbling and helping the Japanese firm's shares surge after upbeat earnings.

Sony and Apollo are now contemplating a variety of approaches to acquire Paramount's assets, the New York Times said.

Paramount declined to comment on the report, while Sony and Apollo did not immediately respond to a request for comment late Friday.

Like other studios, Paramount has been struggling to recover from last year's months-long strikes by Hollywood writers and actors, a soft advertising market and falling cable subscriptions in the United States which have eroded profits for its TV business.

Paramount has also been talking with Skydance Media but earlier this month ended a period of exclusivity in the negotiations.

(Reporting by Mrinmay Dey in Bengaluru; Editing by Edwina Gibbs)

Copyright 2024 Thomson Reuters .

Tags: United States , Japan

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