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Step 1
Setting up a client account record is the beginning of the accounts receivable cycle. This information may come from a sales receipt, a sales contract, a form from the sales/credit department or whatever documentation is used to record a sale. Contact information such as names, addresses, phone numbers and references (to name but a few) are compiled and entered into an accounts receivable software program and/or a hard copy file is organized and stored for later use. This information not only makes billing a client possible, but can also be used for future sales and other demographic purposes. Regular, continual clients should be asked to update this information as it changes, infrequent customers should be asked about changes each time they place an order or make a purchase.
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Step 2
After the sale is made or the service has been provided, a bill can be produced using the client account record. Bills should be sent to clients on a regular basis and include such things as the date of the bill, a description of the product or service, the price of each item, any additional fees or taxes and a due date. Pentalties for missing the due date should be listed on every bill, as well as instructions on where and how to send a payment. When using accounts receivable software, the orders/contracts are all entered and identitied by a client ID and then the bills are printed and sent to each customer. If accounts are not paid in full before the next billing cycle, a past due bill is sent every billing cycle until payment is received.
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Step 3
As the clients send in payments they must be posted to the correct accounts. Each payment must be identified either by account number or client ID in order to be posted accurately. This task is critical as a mis-posted payment can be difficult to find and correct, especially if you are dealing with thousands of payments everyday.
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Step 4
Reviewing the aged receivable report that shows "open" or unpaid accounts must be done on a regular basis. This report is usually broken down into time periods that sort the unpaid balances into categories such as current, 30 days past due, 60 days past due, 90 days past due and over 120 days past due. The data used for this report includes the bills sent to each customer less any payments that have been received. This report is essential to most businesses, as it ensures that overdue bills are not forgotten.
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Step 5
Most companies, both large and small, establish a policy for over due accounts. For example, some companies dictate that accounts that are 30 or 60 days past due are called directly to ask for payment and accounts that are 90 days or more past due are sent to a collection agency, but only after many attempts are made to collect the amount owed. Each company is different and will have policies and procedures in place to handle accounts receivable for their respective industry.
