Accounts Receivable (AR) Module is a Key Element of Customer Management
An accounts receivable (AR) application records and tracks invoices to clients. Additionally, a receivables module allows you to apply interest and manage collections.
What can Accounts Receivable do for me?
With this application, you can easily track late payments and interest rates. You don’t need to pull multiple spreadsheets to figure out which payments are overdue and how much interest you should charge. You can save time with built-in rules that will automatically calculate appropriate rates and late fees.
Having your customer data stored in one place will help keep you company organized and efficient. You can track customer payment terms and even prevent further sales until an account in good standing.
Applying balance forward or open item tracking allows your company to be flexible when tracking your customer payments. You can decide whether to have your customers pay off their bill in lump sums, or they can pay for each item individually.
Key Benefits of Accounts Receivable
- Encourage the collection of unpaid invoices with various aging reports and automated reminders
- Keep organized by storing and managing contact and billing information about each account in one place
- Improve your cash flow by quickly creating easy-to-read collection reports of all outstanding invoices
- Save time by applying payments and posting new invoices in real time
- Eliminate time-consuming tasks by creating rules to automate late fees and interest earned
Key Features of Accounts Receivable
Cost Posting Entries
The basis of an accounts receivable system is creating a record of each individual customer billing. Each entry requires a minimum of certain data points, including: a reference number for the record, the customer name, the billing date, the amount of the bill, and a due date. Accounts receivable software packages vary in both the tools for creating these records and in the formatting of each field. It’s important to find a package that matches your processes. For instance, you may have a preset convention for creating the reference number for each entry. Your software needs to handle this. Issues as simple as the number of digits allowed may have an effect on which system is right for you. Beyond the core info each AR module needs to capture, you may also look for a variety of other fields. It’s important to consider the presence and format of fields for notes, identification of responsible internal parties, product and service codes, and a variety of other information.
The Master Customer List
Your accounts receivable module does more than just track receivables entries. It also provides you with an ongoing customer database. The customer stores contact info, addresses, terms, and other data. The precise way that each software package handles the customer list will vary. You’ll want to make sure that the software supports all the customer information you need.
Your accounts receivable package can greatly enhance the efficiency of your collections. The first thing you need to know is when you have late payments due. Accounts receivable software will allow you not only to run those reports, but also to set alerts. Collection alerts can be based on factors such as the length of time the payment is overdue and the amount of money owed. Many Accounts Receivable modules provide for the central management of your collections process by automating the distribution of reminder emails and dunning letters. Often the accounts receivable module can be programmed to put credit holds on chronic late paying customers.
Some of the most important business reports have to do with understanding accounts receivable related information. There are a number of core reports your accounts receivable module should provide. Typical accounts receivable reports might be organized by customer, billing date, due dates, open receivables, closed entries, payment types, aging, payment periods, or account codes reflecting the type of product or service billed. How much information an accounts receivable module is capable of databasing is another important question. The size of the database might determine how easily you are able to report on information from 1 year ago or 5 years ago.
When you bill a customer it is typically done with an explanation of what late fees might apply. Accounts receivable software allows you to easily select from common interest terms (Net 30, for example) and set the interest rate. Once you have established your terms and interest rate, your Accounts Receivable module will handle the calculation and tracking of any late fees. The complexity involved in the terms you wish to set may have an effect on which accounts receivable program is best suited to meet your needs.
Accounts receivable software needs to be able to efficiently deliver the receivables ledger info regarding current and expected assets to the balance sheet located in the general ledger. In an integrated accounting environment, this happens instantaneously. If your accounts receivable module isn’t integrated with the general ledger, you’ll need to make sure that at a minimum it exports information in a format the GL can understand.
Some companies offer discounts for early payment. Other companies may wish to discount costs when a customer uses a preferred payment method. This approach can have a positive impact on promoting timely payment. It does introduce an additional level of complexity. Choosing a package with tools designed to assist with discounting can save you a lot of time.
Credit Report Access
A feature growing in popularity is the ability of an accounts receivable system to tie in with 3rd party credit report bureaus. If you frequently need to check credit reports, the ability to automate the requests through your accounts receivable may be beneficial.
The level of reporting functionality will vary between different solutions. Some packages will allow you to report using complex instructions and various fields. The ability to customize fields and create graphical reports can create additional efficiencies and add insight into accounts receivable data.