Accounts receivable (AR) is one of the most important, if not the most important, operations impacting a company’s cash flow. As a result, decisions and actions made within the accounts receivable department can be felt throughout an entire company. While the economy shows signs of improvement in some sectors, companies must still proceed cautiously and consciously when it comes to monitoring and managing cash flow. Recognizing that the accounts receivable team is not just a line on the balance sheet and can be a valuable asset that collects faster and frees up cash, is the first step. Next, consider possible improvements to your accounts receivable processes and policies.
To create a more efficient AR department, determine a plan and implement strategic goals that all employees will understand and work towards achieving. Implement the following steps and suggestions, to turn your AR department into a cash-collecting machine.
Set clear goals and objectives
Before deciding to turn the AR department upside down, stop to consider what outcomes you want to achieve. This may seem like common sense, but we have all experienced the manager on a mission who wants to create change, without a clear understanding of their effects, positive or negative.
Gather information such as budgets, metrics and benchmark data from previous years to have a starting place to gauge progress. A quick comparison of your company’s information against other similar businesses will also help establish more realistic goals.
Once you determine clear areas in need of improvement, identify the processes that will best help the department reach those goals. The goals set should be measurable and achievable within a sufficient time period. Otherwise, the operational changes can put a company at risk of low employee morale and managers can face challenges enlisting team support to champion the change that needs to take place.
Improvement has to filter from the top down and be brought in by all departments and employees involved. Give employees a stake in the change by asking for input during the planning phase.
Communicating with employees provides management critical insight into how well or poorly the department’s processes and procedures work in practice. Employee involvement is a crucial factor to success, as it is far easier to work hard towards goals you helped establish than it goals forced upon you.
Plan for success
Develop a calendar that notes milestones and completion dates for each goal. Identify who will be responsible for what, and include expected monthly progress that can be measured against actual performance.
Evaluate your goals throughout the improvement process, so adjustments can be made when required. Create a document that summarizes your metrics, goals, calendar and plan for implementation, then distribute it to all involved.
Once a calendar is created, determine how the changes will be implemented. Strategies will vary depending on the unique specifics of your department, so be sure to get feedback from everyone involved to avoid potential missteps.
Explain the benefits
Make sure employees know the value of the changes. If they understand the benefits of change they will be more inclined to work towards the new goals. Offer incentives, such as a reward for meeting goals. Incentives can be intrinsic like a simple thank you for helping on a job well done or posting examples and kudos of employee achievements, you may also consider monetary when appropriate.
The key to successfully revamping your accounts receivable department is to turn management goals into team goals, so that all parties involved can be recognized as valuable and understand that what’s good for company is good for them. Taking the necessary steps will make the AR team both a cash generator and valuable voice within the company, as opposed to the department that keeps its head down and rinses and repeats the same processes for years on end.