Year-End Accounts Receivable Best Practices

Year-end proves to be a bustling period for businesses, necessitating a thorough review of accounts receivable. Despite the hectic nature of this time, it is essential to ensure a robust year-end closeout and lay the groundwork for improvements in the upcoming year. This article outlines recommended best practices for year-end accounts receivable, aiding in the streamlining of processes and the establishment of accurate budgets and goals for the future.

Reviewing Accounts Receivable Aging Report

Commence the year-end process by scrutinizing the accounts receivable aging report. This report holds crucial data on outstanding customer receivable accounts and the duration of outstanding balances. By examining this data, you can identify customers requiring follow-ups and accounts at risk of write-off. Utilize the report to focus your time efficiently on year-end follow-ups and gauge your business’s financial health.

Following Up on Outstanding Invoices

After reviewing the aging report, prioritize contacting customers with outstanding balances. Employ emails or calls to remind customers of their dues and ascertain the expected payment timeline. Timely follow-ups enable swift decisions on handling situations where customers may need more time or are unable to cover their credit. Update customer accounts promptly after successful follow-ups to ensure an accurate year-end balance.

Confirming All Sales or Services Are Properly Invoiced

Thoroughly review sales and service records to ensure accurate invoicing. Address any pending invoices or incorrect amounts promptly by contacting customers. Send December invoices promptly to collect payments before the month concludes. Identify and rectify any past invoices with errors, providing customers time to adjust their books accordingly.

Identifying Accounts for Write-off

Following up with outstanding customers allows for a review of accounts that may be irrecoverable. For customers facing financial challenges, consider options like accepting partial payments or involving collections. After identifying uncollectible accounts, proceed to write them off as bad debt.

Ensuring All Receipts Are Properly Recorded

In addition to follow-ups, review accounts to ensure accurate recording of received payments. This guarantees an accurate year-end receivable balance for financial statements and focuses team efforts on genuinely outstanding accounts. Incorrectly credited payments can lead to customer frustration and wasted team resources.

Reviewing Accounts Receivable Data Points

Leverage year-end to assess accounts receivable effectiveness through data points analysis. Calculate the accounts receivable turnover ratio to gauge collection effectiveness. Analyze the average collection period, comparing it to credit terms. Implement changes if necessary, such as faster electronic payment methods or increased follow-up efforts.

Reflecting and Reviewing for Process Improvements

Engage in a reflective process, collaborating with the accounts receivable team to brainstorm ideas for process improvements in the coming year. Address specific challenges faced during the collection process, such as credit verification or overwhelming year-end tasks. Consider adopting accounts receivable software to expedite processes and automate functions.

Planning for Next Year

Utilize year-end accounts receivable data to formulate financial targets and budgets for the upcoming year. Analyze effectiveness in collecting receivables to anticipate expenses and make informed decisions on investments. Use customer repayment trends to allocate resources efficiently, ensuring optimal team capacity during peak payment periods.

Closing Thoughts

While year-end remains a hectic time for businesses, dedicating time to review accounts receivable is pivotal. Implementing the outlined best practices ensures thorough collection and accurate financial statements for year-end. The analysis of data points facilitates process improvements and sets realistic goals for the forthcoming year.

Source: Enterprise Recovery – End of Year Accounts Receivable Practices