Accounts Receivable
Accounts receivable is the back half of order-to-cash: turning a delivered order into an accurate invoice, then into cash in the bank, without losing the customer relationship on the way.
Workflow
- 01Billing Creation
- 02Payment Tracking
- 03Collections Management
- 04Revenue Recognition
Data in and out
- IN Billing data from Order Processing · continuousWithout it: Delivered work is never invoiced.
- IN Customer receipts from Bank statement feed · dailyWithout it: Cash is unapplied and collections chase customers who have paid.
- OUT Invoices and statements to Customers and e-invoicing networks · per billing cycleWithout it: Payment terms start late, and days sales outstanding rises.
- IN Delivery confirmation from Order Processing · continuous
If you change this
It implies 6 topics across 3 modules, including Customer Relationship Management and Supply Chain Management which you might not expect.
See the path ahead →The receivables cycle
- 01
Customer setup and credit assessment
Credit limit and payment terms established before trading, not after the first default.
- 02
Billing
Invoice raised from the order, contract, meter reading or milestone.
- 03
Delivery of the invoice
Email, portal, e-invoicing network or post — whichever the customer will actually action.
- 04
Payment receipt
Funds arrive by direct debit, card, EFT or BPAY.
- 05
Cash application
Receipts matched to open invoices, ideally automatically by remittance data.
- 06
Collections
Overdue accounts worked through a defined escalation path.
- 07
Dispute resolution
Queried invoices investigated, then credited or upheld with a reason recorded.
- 08
Revenue recognition and reporting
Revenue recognised on the correct basis, and the aged debtors report reconciled to the ledger.
Invoice accuracy is a collections strategy
Most late payment is not refusal to pay. It is a customer waiting on a corrected invoice, a missing purchase order reference, or an invoice sent to the wrong person. These are billing defects wearing a collections costume.
- Capture their PO reference: Many corporate customers cannot pay an invoice that lacks one. Make it a mandatory field at order entry.
- Bill to the right contact: The person who signed the contract is rarely the person who processes invoices.
- Match their format: Large customers often mandate a portal or e-invoicing network. Fighting it delays payment.
- Invoice promptly: The clock starts at issue, not at delivery. Every day of billing lag is a day of DSO.
Credit and collections
- Risk-based credit limits: Limits set from credit data and trading history, reviewed rather than set once.
- Automated dunning: Escalating reminders triggered by age, with tone and channel varying by segment.
- Credit holds: System-enforced stops on new orders past a threshold, with a defined release authority.
- Dispute codes: Every held invoice carries a reason code, so the root causes can be reported and fixed.
- Provisioning and write-off: Doubtful debt provisioned on a consistent policy, with write-off requiring approval.
Segment before you automate. Chasing a strategic account with the same automated sequence used for small accounts is how finance systems damage commercial relationships.
Metrics and KPIs to track
Days sales outstanding
Average days from invoice to cash received.
Billing lag
Days from delivery or milestone to invoice issued.
Aged debtors profile
Balance by ageing bucket, and the trend in the oldest buckets.
Cash application auto-match rate
Receipts allocated without manual intervention.
Dispute rate and value
Invoices queried as a share of invoices issued.
Bad debt write-off
Written off as a percentage of revenue.
Collection effectiveness index
Cash collected against what was available to collect.
Alongside this