Proactively managing and monitoring accounts receivable is a necessity for most businesses, no matter the operation industry. Unfortunately, most companies have problems and have no procedure in place for debt collection. Even if procedures are in place, monitoring accounts receivable often lacks. This is not a good thing because it drastically slows down the speed at which debt is collected from customers that do not pay for services/products received.
Fortunately, there are different things that can be done. The advice presented below comes from a national leader in accounts receivable management, Receivables Performance Management. This debt collection agency has an exemplary track record based on ethical approaches to debt collection, as can be seen in Receivables Performance Management reviews so you know the advice offered can be trusted.
Rolling Averages
The average data should be based on the current receivable turnover rate. However, data has to be smoothened out. If you look at daily numbers you are going to see a large variation so it is normally a good idea to analyze rolling averages that cover a larger time frame. If you want to monitor accounts receivables, the best thing you can do is to keep control of the rolling averages while also considering standard deviation, minimum deviation and maximum deviation. This allows you to properly build an action plan in the future.
Analyzing Receivables Value
Rolling averages are going to help in determining the receivables value that your business is currently faced with. You can analyze them based on various time frames, like what is on time, what is one month late, what is 1 to 3 months late, what is more than 6 months late and so on.
Monitoring Changes
Many companies that do monitor accounts receivables make the mistake of not adapting to changes that appear in the data they collect. It is important to measure averages and see the differences that appear over appropriate periods. The changes have to be investigated when they go towards a wrong direction. This is particularly important as a more serious problem might be in place. Having one big client overdue by one day can easily mess up your stats though. That is why you need to keep a close eye on why the discrepancies appear.
Trends
Identifying accounts receivable trends helps to adapt to situations that repeat in specific time frames. This can only be considered though in the event you have enough data. Linear regressions of daily running averages analyzed over a period of 45 days are an example of a good trend that can be analyzed.
Conclusions
Knowing how to record data about accounts receivable is definitely important but it needs to be done in a proper way. This does include monitoring everything that happens in a company in relation to debt collection. Whenever the situation gets worse and debt piles up, it is important to think about hiring a specialized debt collection agency. This will help to get solutions up and running before everything gets to be too serious.
