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Setting SMART Goals for Accounts Receivable

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedMay 20222 min read

Accounts receivable can be a frequent pain-point for businesses, with late payments causing an untold number of funding and cash flow issues for US businesses. Setting SMART (Specific, Measurable, Achievable, Relevant, Time-bound) performance goals for accounts receivable can help you optimise your process and reduce the time it takes for your customers to pay you.

1. Define key KPIs and objectives

One of your business’s first performance goals for accounts receivable should be centred around your objectives and KPIs. After all, it’s difficult to work out the scale of your invoice problems if you don’t have the complete picture. In accounts receivable, debtor days is the most common metric as it has a significant effect on cash flow, so reducing the total number of debtor days should be one of your key accounts receivable goals and objectives.

Of course, there are many other metrics that you should pay attention to, including the number of aged debts, number of follow-up calls made to clients, the percentage of debts written off every month, the percentage of clients who pay late, and the number of reminders sent to clients. Choose the metrics that fit best with your company’s needs and try to reduce them as far as possible.

2. Maintain accurate customer data

Maintaining a high standard of data hygiene is one of the most important accounts receivable goals. Within large client databases, creeping inaccuracies – which can be something as simple as a misspelled email address – are likely to cause delays in your accounts receivable process and stop you from collecting payment in a timely fashion. Be sure to run regular checks on your database and implement rigorous training to give everyone involved with data-entry the tools they need to prevent errors.

3. Establish a clear credit approval process

Given that you are, in effect, lending money to your clients, setting up a clear and concise policy around credit approval is one of the most effective accounts receivable goals and objectives. It’s particularly important to denote the specific circumstances under which your credit limits can be overridden, if any, as well as what needs to happen for an account to be placed on hold.

To achieve this, the AR team should work closely with finance and sales to find out what policies make the most sense for your existing client base. You should also be sure to review your credit limits on a regular basis to ensure that your policy is still relevant. If necessary, you may need to adapt your policy to better align with changing business circumstances and economic conditions.

4. Streamline the invoice workflow

Accounts receivable often runs into problems when invoicing isn’t handled effectively. From incorrect client information to the failure to send the invoice quickly enough, errors in your invoice workflow can lead to delays and stop you getting paid. It’s also important to review when you send invoices, as many businesses invoice in batches, creating a bottleneck that slows down your cash flow.

When you’re considering your accounts receivable goals, think about automating wherever possible. By automating your process with an electronic billing system like Xero or QuickBooks, you can reduce the risk of human error and ensure that your invoices are issued as soon as the work is finished, boosting your cash flow and reducing admin on both sides.

5. Optimise payments and collections

Finally, one of the key accounts receivable collection goals is a simple one: optimise your payments and collection process. By offering Direct Debit through GoCardless, you can automate payments without needing to ask for authorisation from the customer. You could also offer a wide range of payment options – including bank transfers and credit/debit cards – to ensure that payment is as easy as possible for your customers.

Accounts payable: A Complete Overview

If you don’t manage your accounts payable process efficiently, your business could experience a number of negative ramifications. For a start, if you don’t have a clear picture of how much money you owe to vendors and suppliers, it’s impossible to gain any real insight into your company’s overall financial health.

Learn more about Accounts Payable

We can help

Using GoCardless to improve payments and collections can help you meet and exceed your performance review goals for accounts receivable. Find out how GoCardless can help you with ad hoc payments or recurring payments.