Receivable Management: Defnition, Objectives, Process Flow, Best Practices

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Updated on Dec 21, 2023 17:20 IST

Did you know that businesses lose, on average, 1.8% of their annual revenue to bad debt? Scary, isn't it? Receivable Management is your financial superhero, diving in to slash that percentage and boost your bottom line. This blog will discuss Receivable Management and how to do it for your business.

Businesses lose an average of 1.8% of their yearly revenue to bad debt. Scary, right? Receivable Management is your financial superhero, diving in and slashing that percentage, hence improving your bottom line. Receivable management helps the business overcome the risks of overdue or non-payment of dues, besides strengthening the financial foundation and liquidity position of the firm. In this blog, we will discuss receivable management and how you can do it for your business.

Table of contents

What is Accounts Receivable?
What is Receivable Management?
Objective of Receivables Management
Receivables Management Process Flow
Tips to Optimize Receivable Management

What is Accounts Receivable?

Accounts receivable refer to money owed by a customer to the business upon selling of goods or services on credit. It is a claim that one party has against another upon issuance of an invoice to the customer. The claim can be for a long period-meaning greater than one year-or a short one-less than one year. Effective management of accounts receivable ensures timeliness of payment and good cash flow.

Examples of Accounts Receivable

Unpaid invoices for products purchased on credit in a store.
Outstanding payments for services rendered, like consulting fees or repairs.
Balances on customer accounts for credit extended, such as phone bills or credit card statements.

What is Receivable Management?

Receivables management, also known as accounts receivable management, is the strategic process of making sure customers pay on time. It helps maintain healthy working capital for business and ensures that customers do not let their invoices become overdue or unpaid.

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Objective of Receivables Management

The best receivables management seeks to convert outstanding payments from customers into liquid assets efficiently in a way that minimizes the negative impact on cash flow and ultimately working capital. It is usually like turning "paper promises" into hard cash. Here are the main objectives:

Maximise Cash Flow
Reduce Days Sales Outstanding (DSO)
Minimise Bad Debt
Optimise Working Capital
Establish and maintain relationships with customers.

Receivables Management Process Flow

Tips to Optimize Receivable Management

Check the client's solvency
Establish and detail payment conditions
Improve your organisation
Make sure the customer confirms receipt of the invoice
Create reminders
Be flexible with payment methods
Ask for an advance
Please do not do business with customers who have not made their payments

About the Author

Rashmi Karan