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Accurately tracking AR and optimizing turnover means more than just keeping a running list of your unpaid invoices. We recommend mapping your process from early customer contact all the way to recording close entries.<\/span><\/p>\n Specifically, when we support our clients with AR, we walk them through the following nine steps of the order-to-cash process.\u00a0<\/span><\/p>\n \u00a0<\/p>\n This is where your sales team lives, but it doesn\u2019t mean it shouldn\u2019t be considered by your finance function. During the sales process, you\u2019ll start the conversation about payment expectations like preferred timeline and payment methods.\u00a0<\/span><\/p>\n Think about including steps in your presales process that support the collectibility of your accounts receivable. Asking if a customer would be open to setting up autopay early helps you minimize AR work, for example. If not, you know it\u2019s time to ask about their preferred payment terms, then plan accordingly.\u00a0\u00a0<\/span><\/p>\n \u00a0<\/p>\n The contract you enter into with the customer absolutely has to provide clear information for your billing or AR process. If they\u2019re going to be an autopay customer, establish that as part of your agreement, and make sure payment details get collected early.<\/span><\/p>\n If they\u2019re going to require AR, make sure the contract clearly explains:<\/span><\/p>\n Include language that says that any payment obligations survive the termination of the contract. That way, your customer can\u2019t avoid making a final payment to you.\u00a0<\/span><\/p>\n Also, as part of the contract execution process, collect the details you\u2019ll need to provide an invoice. Make sure you know which entity to bill, and which stakeholder(s) should receive the invoice. Figure out how you\u2019ll send invoices, whether that means getting contacts\u2019 email addresses or getting set up in your or the customer\u2019s portal.\u00a0<\/span><\/p>\n \u00a0<\/p>\n Your company probably has a specific process for getting a new customer up and running. That might mean onboarding them with your tech platform, adding seats for specified people. Or it might mean dialing in shipping logistics if you\u2019ll be sending them tangible goods.\u00a0<\/span><\/p>\n As you\u2019re providing what they need to get started, make sure they\u2019re providing what you need for billing or AR, too.<\/span><\/p>\n That starts with the details for their customer record. You need to get all of the following:<\/span><\/p>\n Make sure the setup goes both ways from a purchase order (PO) perspective. If the customer needs to match your invoice to their PO, work to get what\u2019s required established. If they need to see specific PO details on your invoice, for example, create a workflow for your finance team or automate that in your AR platform.\u00a0\u00a0<\/span><\/p>\n \u00a0<\/p>\n Remember, AR starts once your performance obligation has been met. The contract from step #2 should make it clear what constitutes fulfillment. That could be the customer\u2019s receipt of goods or the end of the month for each month\u2019s software subscription.\u00a0<\/span><\/p>\n You need to find a way to get go-live confirmation, meaning the customer agrees that your performance obligation has been met (essentially, your product or service has \u201cgone live\u201d). You might require signature upon delivery or use the activation log for your software to provide the required confirmation.<\/span><\/p>\n This piece of the order-to-cash process looks different for every company. One thing never changes, though: it\u2019s critical. Make sure you have a way to confirm that you\u2019ve met your performance obligation or the customer could dispute your invoice and refuse payment.\u00a0<\/span><\/p>\n A while ago, this required manual work. Someone needed to type up (or even write out) the invoice, matching to the customer\u2019s PO, contract requirements, or order details. Then, they had to mail, fax, or email it to the customer.\u00a0<\/span><\/p>\n Fortunately, technology has streamlined this piece of the order-to-cash process. Plenty of platforms exist today to automatically generate an invoice upon the receipt of a PO, then route it to the primary billing contact(s) on record.<\/span><\/p>\n Better still, sophisticated platforms let you see when the invoice has been viewed. This way, you avoid problems that could otherwise arise if the customer claims they \u201cnever saw it.\u201d\u00a0<\/span><\/p>\n As you generate invoices, make sure it\u2019s clear and easy to remit payment. If the customer prefers to pay via credit card, for example, you might send them an invoice that allows them to input their credit card info and pay from within the invoice. Again, today\u2019s AR platforms make this easy.\u00a0<\/span><\/p>\n \u00a0<\/p>\n This is the part that most people think of when they hear the phrase \u201caccounts receivable.\u201d\u00a0<\/span><\/p>\n In an ideal world, this step goes smoothly. Say you send an invoice for $1,000 to a customer with Net 30 terms. This step is easy when they pay you $1,000 within 30 days.<\/span><\/p>\n AR challenges arise when the due date gets missed, obviously. But you can also run into a headache if a dispute arises. That means the customer says something about the invoice is incorrect (including that the goods or services weren\u2019t delivered per contract terms).\u00a0<\/span><\/p>\n Strong accounts receivable means staying on top of any blockers that arise. Your team needs to be responsive to disputes and follow up as soon as a deadline gets missed. Being proactive about tackling challenges generally helps you resolve them faster.<\/span><\/p>\n With a dispute, you\u2019ll want to review the matter and propose a clear resolution. Agree to it with the customer in writing. Then, stay on top of making sure the invoice gets paid, whether you adjusted it or not.\u00a0<\/span><\/p>\n With delayed payment, start dunning immediately. Reach out consistently to keep payment top-of-mind for the customer. Diligent collections help you keep your turnover ratio high.\u00a0<\/span><\/p>\n \u00a0<\/p>\n Once the customer remits payment, you need to make sure you\u2019re applying it properly. Namely, you want to make sure that in whatever AR system you use, that payment gets attached to the correct invoice, and that invoice then gets marked as paid.\u00a0<\/span><\/p>\n A lot of today\u2019s AR technology automates this for you. If you\u2019re organizing your AR manually, though, this step is critical and warrants the careful attention of your team.\u00a0<\/span><\/p>\n \u00a0<\/p>\n Close entries are your company\u2019s way of wrapping this whole thing up. You mark paid invoices as closed, and you reduce the balance on your accounts receivable accordingly. You then reconcile your AR ledger to your general ledger.\u00a0<\/span><\/p>\n If any adjustments were required \u2014\u00a0maybe because of a dispute or an early payment discount \u2014 this is the time to make sure that\u2019s recorded.\u00a0<\/span><\/p>\n Just as importantly, strong close entries give you a way to make sure revenue is recognized in the appropriate period. This circles back to accrual-based accounting, the GAAP requirement. By being thoughtful about your AR close entries, you help your company stay in compliance.\u00a0<\/span><\/p>\n \u00a0<\/p>\n This final step is where the magic happens. When you zoom out and look at your entire order-to-cash process, you get the opportunity to learn, then improve.\u00a0<\/span><\/p>\n Calculate your DSO and turnover ratio. Look at how your current AR processes impact your <\/span>monthly recurring revenue (MRR)<\/span><\/a>. Analyze what\u2019s working and what isn\u2019t in your order-to-cash workflows. This way, you can find opportunities to streamline the steps from when a customer places an order to when their money hits your accounts.\u00a0<\/span><\/p>\n#1: Presales<\/span><\/h3>\n
#2: Contract<\/span><\/h3>\n
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#3: Order entry and customer setup<\/span><\/h3>\n
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#4: Fulfillment and go-live confirmation<\/span><\/h3>\n
#5: Invoice generation and delivery<\/span><\/h3>\n
#6: Collections and dispute management<\/span><\/h3>\n
#7: Cash receipt and application<\/span><\/h3>\n
#8: Close entries<\/span><\/h3>\n
#9: Reporting and metrics<\/span><\/h3>\n