Take the AR Test: 12 Steps to Better Accounts Receivable

Are you struggling with late payments and drowning in a sea of unpaid invoices? You're not alone. Many businesses face challenges when it comes to managing their accounts receivable effectively. As experts in Accounts Receivable process and automation, we've developed a simple 12 question quiz to help you assess and improve your AR process: The Paidnice 12-Point AR Test.

Why Your Accounts Receivable Process Matters

Before we dive into the test, let's talk about why having a solid accounts receivable process is crucial for your business:

1. Cash Flow: A smooth AR process ensures steady cash flow, which is the lifeblood of any business.
2. Customer Relationships: Clear communication about payments can actually strengthen your client relationships.
3. Time and Resource Savings: An efficient process means less time chasing payments and more time growing your business.
4. Financial Health: Prompt payments contribute to a healthier balance sheet and can improve your credit standing.

Now, let's get to the heart of the matter - The Paidnice 12-Point AR Test.

Xero Small Business Insights measures how long small businesses wait for payment in five markets.

Everything below is about closing that gap.

Take The Paidnice 12-Point AR Test

Take our 12-point test to see how your accounts receivable process stacks up.

‍Give yourself 1 point for each "yes" answer.

1. Is someone in the business responsible for getting invoices paid on time?

2. Do you have a standard process for issuing and following up on invoices?  (if not defined, or ad hoc it's a no)

3. Are your invoices sent on time, clear and easy to understand (with supporting documentation where necessary)?

4. Do you measure and track the success of your collections process - is your accounts receivable balance and debt age improving each month? (if nothing, then it's a no)

5. Do you offer payment terms that are fair and reasonable that are clearly stated on every invoice?

6. Do you provide your customers standard business terms and do they agree to them before work starts?

7. Do you send payment reminders and statements before and after the due date?

8. Do you have up-to-date contact details for your clients (phone and email)?

9. Do you call your customers if invoices are unpaid?

10. Do you handle invoice queries and disputes?

11. Do you make it easy to pay you by offering multiple payment options?

12. When payments arrive, do you mark the invoices as paid promptly?

Interpreting Your Score: Rate Your AR Process

0-4: Early Stage - You may have an ad-hoc or poorly defined receivables process. It's time to put some solid processes in place to ensure consistent, prompt payments.

5-10: Improvement Needed - You're on the right track, but a few tweaks will significantly improve your collections process.

11-12: Great - Congratulations! You have a best practice receivables process. But there's always room for optimization and automation.

Breaking Down the Test: Why Each Step Matters

Let's dive deeper into each question and understand why these elements are crucial for a robust AR process:

1. Designated AR Manager: Having a go-to person for payments is like having a captain for your ship. It ensures accountability and focused attention on this critical business function.
2. Standardized Process: Consistency is key. A solid process for sending out and following up on invoices means less chasing and fewer missed payments.
3. Clear, Timely Invoices: Think of your invoices as a conversation with your clients. Clear, timely, and well-documented invoices leave no room for confusion or excuses for late payment.
4. Measuring Success: You can't improve what you don't measure. Tracking your AR metrics gives you the insights needed to make data-driven decisions and continuously improve your process.
5. Fair Payment Terms: Nobody likes surprises, especially when it comes to paying bills. Fair and clear payment terms ensure everyone's on the same page, helping you avoid misunderstandings and keeping the cash flowing smoothly.
6. Agreed Business Terms: Starting on the right foot is crucial. Getting your customers to agree to your business terms upfront lays a solid foundation for your relationship and can prevent disputes later.
7. Payment Reminders: A friendly nudge can go a long way. Regular reminders keep payments top of mind for your clients and reduce the chance of overdue invoices.
8. Updated Contact Details: You can't get paid if you can't get in touch. Keeping client contact details current ensures your reminders and statements reach the right person every time.
9. Phone Follow-ups: Sometimes, a quick call can do what emails can't. Picking up the phone shows you mean business and can speed up the payment process, especially for larger invoices.
10. Handling Queries and Disputes: Keeping communication lines open and resolving disputes quickly keeps the money flowing and relationships intact. Address issues head-on to prevent them from spiraling into bigger problems.
11. Multiple Payment Options: The easier you make it to pay, the faster you'll get paid. Offering a variety of payment methods means your clients can choose the one that works best for them.
12. Prompt Payment Recording: Stay on top of your records. Promptly marking payments as received keeps everything in order and helps you see where follow-ups are needed.

Next Steps: Improving Your AR Process

Now that you've completed the Paidnice 12-Point AR Test, you have a clear picture of where your accounts receivable process stands. Here's how to move forward:

For Those Scoring 0-4 (Early Stage):

1. Focus on implementing the basics first. Start by assigning an AR manager and creating a standardized invoicing process.
2. Develop clear, easy-to-understand invoice templates and payment terms.
3. Set up a simple system for tracking payments and following up on overdue invoices.

For Those Scoring 5-10 (Improvement Needed):

1. Identify the specific areas where you're falling short and prioritize improvements.
2. Consider implementing AR software to automate reminders and tracking.
3. Review and optimize your payment terms and options to make it easier for clients to pay.

For Those Scoring 11-12 (Great):

1. Look into advanced AR automation tools to further streamline your process.
2. Consider offering early payment discounts to incentivize even faster payments.
3. Regularly review and refine your process to maintain your high standards.

For a ranked action list with a worked £ table, see Customers keep paying invoices late: what to do, in order.

The Path to AR Excellence

Regardless of your score, remember that improving your accounts receivable process is an ongoing journey. By focusing on these 12 key areas, you can significantly enhance your cash flow, reduce stress, and build stronger client relationships.

Ready to take your AR process to the next level? Paidnice is an all-in-one accounts receivable automation tool designed to streamline your accounts receivable workflow. From automated reminders to customizable invoice templates, we've got everything you need to get paid faster and more consistently.

Don't leave money on the table. Take the Paidnice 12-Point AR Test today, identify your areas for improvement, and let us help you transform your accounts receivable process.

Here's to smoother collections and better cash flow!

Written by

Denym Bird

Co-founder & CEO of Paidnice

Denym is a software entrepreneur and writes about accounts receivables management for small business.

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