Accounts Receivable Management – Definition
Just as a physician would not prescribe a patient’s treatment without first diagnosing the condition, companies should not propose changes in the company’s credit policies and procedures without thoroughly evaluating the present situation. There should be a thorough evaluation. Although an organization may intuitively suspect problems exist, the danger is that other troublesome areas are being masked and will be overlooked without a more thorough diagnosis. In addition, companies should conduct such an evaluation periodically to enforce and evaluate continuous improvement strategies in the management of the accounts receivable function. Accounts Receivable Management “includes establishing a credit and collections policy for your credit accounts, including aging accounts receivables and whether to sell on credit at all” (Bizfinance, http://bizfinance.about.com/od/Accounts-Receivable/)
Change is a constant companion in today’s business world. However, change does not have to become a major issue or project if handled properly. The first step in handling change is to determine where the company, and more specifically its accounts receivable function, is currently headed. Once a company has determined the status of the receivables system, they can plan for changes and manage those changes. This is a far better approach than making changes without prior planning, which can create continual turmoil and widespread resistance to new changes. Companies should also be wary of failing into accepting the present without seeking improvements. This may require periodically looking at the entire process. Such a major undertaking involves careful planning as to both the goals and the procedures to be followed. Goal setting for both the final and interim positions with specified continuous improvement steps is important.
Accounts Receivable Management – Key Areas
A diagnostic that examines the key aspects of the accounts receivable function can help companies identify troubled areas. The partners at B2B CFO® are skilled at evaluating the accounts receivable function. Detailed checklists are used which quickly identify which aspects of the accounts receivable function may need improvement. The key areas to review are the following:
- · Analyzing the Current Situation Using Financial Analysis
- · Establishing Credit Policies and Procedures
- · Selling to Creditworthy Customers
- · Collecting Past-Due Accounts
- · Obtaining Additional Security
- · Accounting System and Processing Considerations
- · Monitoring Accounts Receivable Performance
Accounts Receivable Management – Conclusion
Analyzing the current situation with comprehensive financial analysis will determine what other areas need to be reviewed. For example, the analysis of the current situation could reveal that the credit and collection policies are strong but the process for collecting past-due accounts needs improvement. The initial analysis of the current situation provides the road-map on future areas to be reviewed.
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