5 Questions You Must Answer to Improve Receivables Management

The best way to improve your receivables management in the future, is to know what’s going on in your company, your industry, and your customers organizations today. This will help you refocus on your accounts receivable management practices to ensure you are heading down the right path. Answer the following five questions and you will be well on your way to make the changes that will lead you to successful and effective credit and collections.
1. Who Are You?

The first thing you need to do is define who you are. This seems like a straight-forward question, but many businesses start out serving a particular segment of the market, and their business changes, so they don’t have a clear understanding of who they have become over time. Answer this question as best you can now, and add to or change that definition as you move through the next four questions.

2. Are you primarily a B2B or B2C company?

Do you serve business customers, consumers or both? What percentage of customers fall into each of these categories? What percentage of credit and collections problems fall into each of these categories?

3. What is your industry?

How do you define your business? Are you in the construction industry? A distributor or manufacturer? Do you provide consulting or business services? Or are you involved in another industry? This is critical for you to understand as there are many industry-specific issues surrounding accounts receivable depending on your particular industry. For example, construction companies may need to manage mechanics liens for non-payment, and transportation companies need specific information regarding deliveries and freight bills to effectively manage the credit and collections process.

Note that your business can be defined by more than one industry. This is very common, as a manufacturer may also act as a distributor in certain product lines and could also provide business services for the products they manufacture and distribute. It’s important to understand what invoices and accounts are represented in each of your defined industry segments before you start crafting a credit and collections plan, since strategies that work in some industries will not be as effective in others.

4. What is your average customer size?

Do you serve small, medium or large businesses? What is the distribution of these customer sizes across your business customer base? Strategies that work for small companies may be less effective than strategies you implement for larger business companies.

5. What type of customer do you serve?

There may be other ways to get a clearer picture of your customers. For example, your business customers could fall into one of three categories – commercial, government and industrial. Each of these three types of customers may have specific needs that should be addressed in your credit and collections strategies. Spend some time understanding the types of businesses you serve and what percentage of collection issues are related to each segment.

 

By taking the time to answer the above questions fully, you are setting yourself up with a solid foundation for improved eceivables management. Understanding yourself will help you understand your AR problems on a deeper level, thereby helping you improve upon them with the addition of a few accounts receivable best practices.

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