Accounts Receivable Checklist: A How-To for Leaders, Managers, and Clerks

BySalman Chowdhury
Accounts Receivable Checklist

Are you a leader, manager, supervisor, or an accounts receivable clerk?

This guide is for you.

It’s all about making sure your organization gets paid on time. A good process is key.

This guide is full of tips and best practices. They will help you make your accounts receivable processes better. Let’s get started!

Introduction: Why Accounts Receivable Matters

When it comes to managing your organization’s finances, accounts receivable is a big deal. It’s the process that ensures you collect the money owed to you, which keeps the lights on and the services running.

From taxes and fees to utilities and fines, there’s a lot riding on this process. Even small mistakes can lead to lost revenue or strained customer relationships.

This guide is designed to help you optimize your accounts receivable process.

With a few tweaks, you might find that your organization can collect more revenue with less effort. And who doesn’t want that?

A Quick Disclaimer

Before we get into the nitty-gritty, it’s important to note that this guide is for informational purposes only. It’s not legal advice, an audit recommendation, or a one-size-fits-all solution. Every organization is different, so you’ll need to tailor these tips to your specific needs.

For the Leaders: Setting the Stage for Success

Leadership Sets the Tone

As a leader, you’re the one setting the policy and direction for your organization’s financial operations. Your decisions shape how the accounts receivable function is organized, when to invest in technology, and what improvements to authorize. Here’s how to set the stage for success:

Develop Clear Policies

Your ability to collect payments starts with clear, well-defined policies. Make sure you address the following areas:

  • Customer or Debtor Information: Establish controls over setting up or changing customer details.
  • Credit Limits and Deposits: Consider requiring a credit review process and deposits for new customers.
  • Billing Rates and Fees: Formally adopt billing rates or fees, and determine any discount or hardship programs.
  • Billing Timeline: Specify how quickly staff should prepare and send billings.
  • Payment Terms: Set clear expectations for how quickly payments should be made (e.g., net 30 days).

Maximize Revenue Collection

You want to ensure that every dollar owed to your organization is collected. Here are some tips to help:

  • Prompt Invoicing: Send out invoices on time and start collection efforts as soon as a payment is late.
  • Centralize Accounts Receivable: Centralized tracking and management make it easier to keep tabs on what’s owed.
  • Use In-House Collections: Your staff likely has better success collecting payments than an external agency.

For the Managers: Turning Policies into Action

Managers Make It Happen

As a manager, you’re the one who takes leadership’s policies and turns them into action. You’re responsible for designing internal control systems and supporting process improvements. Here’s how to make sure your team is on the right track:

Design Effective Processes

Your processes should be designed to maximize revenue and minimize risks. Consider the following:

  • Accurate Payment Posting: Ensure that all payments are posted accurately and reconciled daily.
  • Account Adjustments: Set clear guidelines for when and how account adjustments can be made.
  • Collection Efforts: Outline specific steps for collecting past-due amounts, and make sure staff know how to escalate efforts if needed.

Monitor and Adjust

Regular monitoring is key to catching issues before they become problems. Here’s what to keep an eye on:

  • Billing Accuracy: Regularly review billing data to ensure accuracy and completeness.
  • Aged Receivables: Keep tabs on how long accounts have been outstanding and adjust your approach as needed.
  • Collection Agency Performance: If you use an external agency, make sure they’re meeting your expectations.

For the Supervisors: Keeping the Ship on Course

Supervisors Oversee the Details

Supervisors play a critical role in making sure that billing and collection activities are carried out according to plan. Here’s how you can ensure everything runs smoothly:

Monitor Billing and Collection Activities

You’re the one making sure policies are followed and internal controls are working as they should. Focus on the following:

  • Billing Accuracy: Ensure that billings are accurate, complete, and timely.
  • Collection Efforts: Oversee the collection of past-due accounts, and make sure efforts are effective and escalating appropriately.

Provide Support and Guidance

Your team looks to you for direction. Make sure they have the tools and training they need to succeed:

  • Skip-Tracing Tools: Provide access to tools that can help locate debtors, and ensure staff know how to use them.
  • Documentation: Encourage thorough documentation of all collection efforts, so there’s a clear record of what’s been done.

For the Accounts Receivable Clerks: On the Front Lines

Clerks Get It Done

As an accounts receivable clerk, you’re the one handling the day-to-day tasks that keep the process moving. Here’s how to do your job with confidence:

Follow Policies and Procedures

Your organization counts on you to follow the rules and keep things running smoothly. Make sure you:

  • Maintain Accurate Records: Keep customer or debtor information up to date, and eliminate duplicate accounts.
  • Prepare Invoices Promptly: Don’t delay in sending out bills—your organization’s cash flow depends on it.
  • Keep Detailed Records: Make sure invoices include all the necessary details so customers know exactly what they’re being charged for.

Start Collection Efforts Early

The sooner you start collecting past-due amounts, the better your chances of success. Don’t wait:

  • Document Everything: Keep a record of all communications and collection efforts.
  • Stay Persistent: Keep in regular contact with debtors until the account is paid, written off, or referred to a collection agency.

1. Complete and Accurate General Ledger (GAAP Reporting)

  • Monthly Reconciliation: Ensure that all accounts receivables are recorded in a billing and collection module, with monthly reconciliation to the general ledger.
  • Review Credit Balances: Identify and resolve credit balances to avoid understating accounts receivable.

2. Reduce Billing and Collection Risks

  • Monitor Customer/Debtor Files: Keep customer or debtor files organized, free of duplicates, and up to date to avoid billing errors.
  • Segregate Duties: Ensure that accounts receivable staff do not handle cash or checks to reduce fraud risk. If segregation isn’t possible, implement strong monitoring controls.
  • Use Third-Party Services: Consider using services like a bank lockbox to handle cash receipts, reducing fraud risk and payment-posting errors.
  • Review Software Permissions: Regularly review software permissions to ensure employees only have access to the functions necessary for their job. No employee should have the ability to complete a transaction from start to finish without oversight.

3. Accurate Record Keeping

  • Align Records with Customers: Ensure your records match those of customers or debtors to streamline collection efforts.
  • Prompt Posting of Payments: Encourage staff to post payments promptly to maintain accurate records.

4. Control Adjustments and Credits

  • Restrict Adjustments: Implement controls over account adjustments, billing reversals, and other credits to prevent fraud and mismanagement.
  • Monitor Adjustment Activity: Regularly review adjustment limits and documentation to ensure proper oversight.

5. Active Collection Efforts

  • Pursue Collections: Maintain active collection efforts until accounts are resolved or written off to prevent a backlog of uncollectible accounts.
  • Support Departmental Billing Systems: Provide training and oversight to departments involved in billing and collections.

6. Establish Performance Measures

  • Set and Monitor Goals: Establish realistic performance measures (e.g., collection period, collection rates) and monitor them regularly to identify issues and opportunities for improvement.
Examples of Measures:
  1. Billing Accuracy:
    • Number or percent of billings that were revised or corrected.
  2. A/R Collection Period:
    • Divide your average accounts receivable balance (beginning A/R and ending A/R divided by two) by net credit sales for a specific period, then multiply by 365 days.
    • Target: Less than a 60-day average collection period.
  3. Repeat Delinquent Accounts:
    • Number of accounts that are repeatedly delinquent.
  4. Collection to Cost Ratio:
    • Amount collected for each dollar spent on collection.
  5. Collection Rate:
    • Dollars collected divided by total billed.
  6. Percentage of A/R Over 90 Days:
    • Percentage of accounts receivable that are over 90 days old (the number of days can be adjusted).
  7. Percentage of Customers or Debtors Paying Late:
    • Percentage of customers or debtors who are consistently late in making payments.
  8. A/R Turnover Ratio:
    • Billings divided by average accounts receivable, indicating how quickly you are collecting accounts receivable. A higher number indicates greater efficiency.

7. Periodic Control Check-Ups

  • Annual Internal Control Review: Conduct an in-depth review of internal controls annually or after significant changes. Use tools like the SAO’s Internal Control Checklist for Accounts Receivable to assess the effectiveness of controls.

Wrapping Up

Improving your accounts receivable process doesn’t have to be complicated.

By setting clear policies, designing effective processes, and staying on top of the details, you can ensure that your organization collects the revenue it’s owed.

Whether you’re a leader, manager, supervisor, or clerk, there’s something in this guide for you.

Remember, the key to success is staying proactive and making sure everyone on your team knows their role in the process. Happy collecting!

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