5 Tips to Track Your Accounts Receivable Effectively
Jun 5, 2023
A/R tracking is essential at a time of economic uncertainty. Doing it effectively leads to better cash flow management, which is a priority whether you’re a small business or a corporation.
The alternative? Risking a cash crunch, which could lead to bankruptcy. In order to not only survive, but thrive in the current climate, we’re giving you 5 tips to make your accounts receivable tracking more effective.
Towards the end, we also give you concrete examples of how A/R tracking can impact your cash flow positively
One of these tips is to use a solution like Upflow: our A/R software comes with analytics features that help you track your progress. By automating part of your AR tasks, you can focus on higher-value actions, like planning for your growth
1 - Improve Your Billing Processes.
Our first tip to more effective accounts receivable tracking is to look at your billing process. How do you send your invoices to your clients? Better customer invoice tracking means better A/R tracking!
Looking at both the internal and external sides of your process is important, as both parts can be streamlined.
Streamline Your Invoicing Workflow.
Creating internal processes means you have an easy-to-follow, efficient way of doing things in your company. This applies to your invoicing or billing process as well. It seems obvious, but some business owners and finance professionals forget to do this - or to review them regularly.
Depending on your business model and payment methods, there are several ways to improve your billing processes. Here are a few general ideas:
Set up clear payment policies and processes: as your company evolves, so do your payment processes. Everyone in your company should know where you stand and what the processes are, with easily-accessible documentation that explain them. Allocating responsibilities makes for more efficient processes too.
Think collaboration: invoicing isn’t the sole responsibility of your finance / accounting department. At Upflow for example, our sales team is involved in the invoicing process.
When several people are involved, bringing in collaborative processes and tools is even more necessary. Supporting your whole company through the invoicing process will make for better (and easier!) tracking.
Make it a priority: accounts receivable tracking should be a discipline just like bookkeeping. Discuss the topic regularly with your team, and even encourage the relevant people to block off some time to work on it.
Allocating time and resources to your accounts receivable tracking means you’ll be able to be proactive about the matter, week after week. That’s key to prevent any bad debts from occurring and focus on your growth.
Use the Right Billing Tool.
The best way to deal with your invoices is to use the right billing software for your business. Even for freelancers or small business owners, a billing tool will help you send and track invoices easily.
An online invoicing tool will save you time on the actual sending of invoices (they help with invoice and email templates). They also help with your accounts receivable tracking, displaying a list of your outstanding invoices.
Some tools include a direct payment feature too, which means your clients can pay straight through the application. If your billing tool is connected to your accounting software (which we strongly recommend), your operations are then automatically counted as a journal entry there.
Most also offer a dashboard with several analytics, calculating the amount of money that came in over a time period at the very minimum.
In a nutshell: billing software makes it easier for your clients to pay you, but also for you to track your accounts receivable more effectively.
2- Centralize Your Financial Data.
When it comes to your accounts receivable tracking, having one source of truth makes your job much easier - and more accurate, too. That’s possible by working in an open ecosystem.
Getting the Most Accurate Data.
Centralizing your data within a space means using one tool as a reference. It is the one you turn to when you want to check your KPIs, create reports, or follow through on your outstanding invoices.
Having one point of reference means you always have the latest data available. It is essential to make informed decisions, short-term and long term.
We recommend you pick a tool or software to use as your one source of truth, and stick with it. Of course, for it to work, it needs to be updated regularly. The best option for doing this is to use software.
Using Automated Tools.
A/R automated software will gather all the relevant data and display it in real-time. It is connected to your existing tech stack, that is to say your accounting software, billing tool, and even your CRM. You can think of it as a super accounting system.
You can pick one of your existing software as your one source of truth, or choose a dedicated new A/R software with the features you need (like, hey, Upflow!).
Whatever you pick: stop using spreadsheets for your accounts receivable tracking! They are time consuming, error-prone, and a nightmare to keep up-to-date. If you want to have more efficient A/R tracking, you need to work with more efficient tools.
When it comes to your accounts receivable, it is essential to work in an integrated environment. Having your software interconnected means information flows freely and is always readily available.
If you use Xero or Quickbooks for example, you can integrate them with Upflow so all your operations are automatically synchronized from one to the other - no need to add each journal entry! Your accounts receivable tracking will get faster and more efficient for it.
Your finance tech stack should therefore be open and easy to integrate with third-party apps. That’s the best option for you now, but also as you grow and add new pieces to your finance system.
3- Focus on the Right KPIs.
If you want to improve your accounts receivable process, you need to know which metrics matter most for your business. Spoiler: they all have to do with improving your cash flow!
Need help tracking key metrics? Check out our free spreadsheet!
Which Accounts Receivable Metrics to Track.
While we recommend fast-growing companies to track more KPIs, these are the essential ones every business should start looking at:
Days Sales Outstanding.
Your DSO is the average number of days it takes on average for your clients to pay you.
You can calculate it using:
The simple method, which calculates an average over a time period.
The countback method, which goes back in time and leads to more accurate results.
Regardless of the formula you use, you want your DSO to be as close to your payment terms as possible: 0 if you expect immediate payment, or 30 days if you offer Net 30.
If your DSO is higher than that, it means your clients are paying their invoices way past their due dates. That endangers your cash flow as you have payables and expenses to pay yourself. Improving your DSO and cash flow is key for a steadily growing company.
While this isn’t an account receivable ratio per se, your aging report has a lot of insights to give you. They’re a visual representation of your invoices, categorized by due dates.
At a glance, you can gauge in which categories your outstanding invoices are accumulating. The 60 to 90-day category is one to watch out for, as it indicates a potential future cash flow problem.
It’s a very useful report to have at hand because it helps you prioritize your efforts. You can take action where it’s most needed and stir your company’s finances in the right direction.
How to Create the Best Analytics Dashboard.
Your dashboard is where you track accounts receivable metrics. How to best track your accounts receivable KPIs depends on your business: the best dashboard is one that makes sense to you (i.e. it has relevant metrics).
Use automated dashboards if you don’t want to spend your time calculating ratios. It can either be through a specialized dashboard software, or through the analytics features of your billing or accounting software.
Upflow has advanced analytics features where you can specifically track your A/R metrics. You can follow your A/R progress and take action to improve it directly through our online application.
Once more, it’s important that all your info is centralized and synchronized if you want your data, reports, and decisions to be relevant.
4. Use Specialized Accounts Receivable Software.
If you’re serious about your accounts receivable tracking, then consider using a tool that’s designed for that. It will make your life easier, and your processes more efficient.
A/R software has the features you need for efficient tracking.
So far, we have talked about improving your accounts receivable tracking in different ways:
Improving your billing process by streamlining your workflows and using the right tool.
Centralizing your data in one place,
Tracking the right KPIs, the right way.
Guess what? Upflow does all of that! And the best part is: that most of it is automated. Once set up, you can use Upflow as your one source of truth. As it connects with your existing finance tech stack, all your financial data is available in real time.
We also offer analytics features to help you track your important KPIs metrics, like your DSO. They’re all calculated automatically, and displayed in a way that’s easy to take in quickly. You can trust the data used is top-quality, and make better decisions with it.
A/R Software Goes Further.
Yes, accounts receivable tracking is great! What’s even better is to be able to do something about it. With a tool like Upflow, you have access to your A/R KPIs and can take action on them directly.
Notice one category of your aging report is piling up? You can see a list of your outstanding invoices and send email reminders straight away!
The best automated A/R software helps you with your analysis, but also with your strategy and your action-taking. Having one place specially dedicated to your accounts receivable management is essential to give it the attention it needs.
5. Use Your AR Tracking to Improve Your Cash Flow
We like to make things concrete, so you’ll find next a few examples of how better accounts receivable tracking leads to better cash flow for your company.
Reducing Your DSO to Increase Your Cash Flow.
A high DSO is a sign of long payment times, and might even indicate a bad product/market fit. It’s important to investigate the source of these longer payment times, and find the adequate solution for your business.
Let’s say everything is doing well in terms of your business model, but you’ve noticed your customers tend to make late payments, hence your high DSO.
Once you’ve noticed that, you can decide to change (or clarify) your credit sales policies. You can:
Start charging a late payment fee,
Incentivize early payments,
Add faster and simpler payment options (credit card debit vs bank transfer),
Talk with your sales teams and tell them to limit the credit sales to X days.
These will help reduce your payment times and your DSO, impacting positively your cash flow.
Sending Payment Reminders to Get Paid Faster.
Thanks to your billing cohort, you’ve just noticed a few of your last wave of invoices haven’t been paid.
Upon seeing this, you can double check if your invoices were actually received by your clients. A technical (or human) mistake is always possible.
After checking the software you use to send your invoices, you can follow up with your clients with a personalized email reminder. Asking to confirm reception of your invoice is always a great first step in the payment reminder process. It comes out as a genuine concern and starts the conversation.
If you notice you have to send more than a few payment reminders, you can even take it a step further by designing a complete payment reminder strategy by:
Setting up a payment reminder workflow: have a clear internal process of when to send what. You can even send payment reminders before your invoice is past due! The best workflows include several follow ups (about 8-10) and mix emails with letters and phone calls.
Tailor your workflows: personalized communications are more effective.
You could have a workflow set up for clients who frequently make late payments, which would include more emails. You could have a different one for new clients, corporate clients, etc.
Use templates: writing each and every email from scratch is not the best use of your energy. It’s better to use a few trusted email templates. You can (and should) still personalize them to your clients, but most of the work is done already.
Upflow has some ready-made templates for you, as well as a few different workflows that work to get you paid. You can even automate when these emails are sent, or leave reminders for you to send them at the right time.
Accounts Receivable tracking is essential to good cash flow management and to ensure your business’ steady growth.
To improve your A/R tracking, look at improving your billing process. Streamlining your internal process and using the right billing software will make it easier for both you and your clients to get paid.
Working in an integrated, connected ecosystem is essential when it comes to finances. A/R tracking is no exception. Centralizing your data into one place leads to faster and more accurate decision-making.
Depending on your business, there are plenty of different A/R KPIs you could track. Make sure to pay attention to the ones who have the most impact on your cash flow. A dashboard is a good tool to help with your accounts receivable tracking.
Using A/R software means doing all of the above easily. As they are designed for this purpose, they make your accounts receivable tracking more accurate and efficient.
Having a dedicated A/R software means being able to address all aspects of your A/R (tracking and taking action) in one place.
If your DSO is high, review your payment policies. If your past due invoices are accumulating, email payment reminders help you get paid faster.