How to Reduce Accounts Receivable

How to Reduce Accounts Receivable. Cash is always king. Businesses must be mindful of payroll and the day-to-day operations of an organization. It is crucial that every company has someone who is tasked with monitoring and reducing accounts receivables. Here are five steps to ensure that accounts receivable turns into cash in a timely manner.

Choose a software tool that allows simple reporting (called an Aging Report) of A/R (accounts receivables). This tool should be able to report cash outstanding in 30-day intervals from the date of sale or the date the service was delivered. A report that is exportable into an Excel format is helpful.

Combine A/R into similar categories. Individual payers behave differently then organizations. Commercial payers may have different schedules than government payers. Viewing receivables as groups allows the A/R Manager to develop a strategy for reducing certain types of accounts receivable.

Address the oldest and largest A/R first. Accounts that are over 120 days old are more important than a 30-day-old account. Finding the biggest dollar value in the oldest time frame means tackling the A/R with the highest risk of loss.

Contact front line managers in the organization to develop processes that reduce the days sales outstanding (DSO) based on findings with specific vendors. It may be current policy to allow three to four weeks to pass before payer information makes it from the Front Line Manager to the A/R Manager. Processing this information immediately may reduce DSO by three to four weeks.

Communicate collection issues with vendors. Often, vendors may not be aware of any issues with accounts payable. Often written or verbal communication stating the facts of a particular situation will generate the conversation needed to convert accounts receivable into cash.

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