accounts receivable management

The accounts department at any company plays an important role in the success of a business. They keep track of all payments and incoming orders for the company. This is where accounts receivable management comes in. If you run a business that sells online or through other e-commerce platforms, you need to manage your accounts receivables differently than if you run a brick-and-mortar store. Accounts receivables are money owed to your business from customers who purchased goods or services sold by your business. E-commerce businesses require extra attention to manage their accounts receivables because they should be able to quickly and easily respond to any sale requests from customers, no matter where that customer is located and what payment method they use to make the purchase. It is known that accounts receivable is a critical aspect that affects the cash flow of a business. Since cash is the lifeblood of any organisation, it is essential to understand the importance of effective cash flow. Let us understand the importance of cash flow. 

The importance of an effective cash flow 

Cash flow is a crucial part of any business, but it can be especially important in e-commerce accounting. When customers pay for products with a credit or debit card, the company will not receive the money until the card company processes the payment. The process is even slower if you pay your vendors or employees with checks. Because of these issues, managing your accounts receivables well is important. Establishing policies on how long customers have to pay is also important. The sooner customers pay, the sooner your business will receive the funds it needs to make continued operations possible.  

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What is Accounts Receivable Management? 

Accounts receivable management manages all the money owed to your business from customers for the goods or services purchased by them from your business. As a business owner, you are managing your accounts receivables daily. You are ensuring your customers are paying on time and that your business has the money to pay its vendors and cover other expenses. Accounts receivable management for e-commerce businesses is different than for traditional brick-and-mortar businesses because the e-commerce business may not ever see the customer who owes them money. Therefore, the e-commerce business must be able to easily accept payments from all customers, irrespective of their locations. This can be done through various payment methods, including credit cards, debit cards, gift cards, PayPal, and many others. 

Understanding the basics of accounts receivable management 

Accounts receivable management is the process of collecting money owed by customers. It includes everything from the initial contact about a due account to the final efforts to collect the debt if necessary. The accounts receivable (AR) process includes: – Staging the invoice, follow-up emails or letters to customers, setting due dates to get payment, sending account alerts to customers, initiating the collections process, and legal action, if necessary.  

Accounts receivable management is essential in any business, but it is particularly crucial for e-commerce companies, which sell to customers all over the globe. Accounts receivable is one of the two components that make up your company’s current assets. Current assets are expected to be converted to cash within a year; therefore, they are not long-term investments. The other current asset is inventory. The most common method of managing accounts receivable is through an accounts receivable management system. This can be as simple as a spreadsheet or as complicated as an automated system with features for collections and credit risk analysis. Your AR management system should include a process for recording new receivables and tracking payment progress and outstanding accounts. 

Why is accounts receivable management important for e-commerce businesses? 

E-commerce businesses must be particularly careful when collecting money from customers because they receive payments via different online payment methods. The sales tax on each transaction can also be different as the customers are located in different areas and sometimes even countries. This costs money and takes time to track all the payments and applicable tax amounts, so it is better to prevent this from happening in the first place by having an effective accounts receivables management system. AR management is important in e-commerce accounting because it allows those businesses to keep track of their customer’s payment history. This helps the AR team to know how to approach an overdue payment or a customer who does not pay their bills. It also helps the AR team to know how to prioritise their work. They can see which customers have not paid their bills and can contact those customers to collect that money. This is a lot harder to do if you do not even know who owes you the money in the first place. 

Managing AR for your e-commerce business 

When managing your accounts receivables in e-commerce accounting, you have to keep in mind your entire customer base. They may be located all over the world, so you will need to be able to accept payment from them in any way they want to pay, no matter where they are. Your online sales and payments are managed through an online payment platform. Your AR management process begins when a customer places an order from your website. That customer may be located in another country and paying with a method you may never have accepted before. You can set up your AR management system to automatically send emails to customers, setting due dates for their payments. In addition, you can set up an AR system to send emails to customers reminding them of payment methods they may have chosen to pay with. 

Benefits of effective AR management 

An effective accounts receivable management system can help your business in several ways. It can improve your cash flow so that you can pay your employees and vendors sooner. It can also help you gain a better reputation with customers, who may otherwise be wary of making a purchase from you if they do not trust your payment practices. A reputation for prompt payment of invoices can help you attract better customers and retain your current customers.   

Tips for effective accounts receivable management 

Know your customer –

Business owners must be able to distinguish between an actual customer and a potential customer. It is important to identify which customers are likely to pay you and which ones might not pay you. 

Use a credit limit and collection policy –

Credit limits determine a customer’s payment ability. In addition, a collection policy will help you determine when and how you will collect a debt.  

Keep records –

E-commerce businesses must ensure to keep accurate records and track all payments received by them. These records will help them to track and manage their accounts receivables. 

Track your cash flow –

Your cash flow is essential for running your business. It can help you determine whether you are profitable or running at a loss. You should be able to tell when you are running on empty and need to scale back or when you have enough cash flow to make payroll.  

Set up an AR management system –

An accounts receivable management system is a valuable tool that can help you to track and manage your accounts receivable. It will also help you identify which customers will likely pay you and which will not.  

Know your financial statements –

It is important to know your financial statements to know how your business is doing in real-time. You should be able to tell when your cash flow is low.  

Conclusion 

The accounts department at any company is crucial for the success of a business. All transactions and orders are kept here. Accounts receivable management is critical for companies that sell online or through other e-commerce platforms. The accounts department at a company keeps track of all payments and incoming orders. In a traditional store, managing accounts receivables is different than e-commerce. E-commerce businesses must be able to track all customers, manage all payment methods, and be able to accept global payments in every currency, accept all payment types, collect on delinquent accounts, deal with any out-of-date information, ensure the security of customer information, and be aware of regulatory changes that may affect their systems.   

When you run an e-commerce business, your revenue depends on customer orders. However, if you do not manage your accounts receivable, your customers will likely stop ordering from you, leading to financial loss. In order to manage your accounts receivable, you must be able to quickly respond to any payment requests, track all payments you receive, reserve accounts, keep accurate records, make it easy for the customers to pay, and keep track of your cash flow. It is important to know who you are dealing with and ensure you have a good collection plan. 

By Anurag Rathod

Anurag Rathod, as a blogger he used to spread all about app-based business, startup solution, on-demand business tips and ideas and so on.