2022 is fast approaching. For accounting teams, that means taking every possible measure to ensure that your company ends the year financially strong.
Collect Unpaid Invoices
You don’t want to carry unpaid invoices into the new year, so your AR team should aim to contact customers as early as possible. Using YayPay’s dashboard, you can quickly identify upcoming items that are due, overdue, or delinquent. The predictive analytics provided by YayPay also allow you to identify which accounts are likely in need of extra attention to ensure timely payment.
If necessary, you can help customers struggling to make payments by setting up a customizable payment plan. Choose specific installment dates for payment, and record the data in your YayPay portal. This will help set up automated communications and regular reminders if your customer misses a deadline.
Offering an alternative payment plan can help build goodwill with your customer, showing that you understand the challenges they may be facing.
Using customized communications, YayPay helped CorneaGen decrease write-offs due to non-response by 70% from FY21 Q1 to Q2.
Close Out Bad Debt
Before closing the books in 2021, you’ll want to identify accounts that are unable or unwilling to pay their invoices so they may be directed to collections, or written off as bad debt if necessary. To do so, you’ll want to create an AR aging report.
In the past, this meant a lengthy manual process that included downloading data from an ERP, analyzing the data, and then compiling it into a program like Excel. However, with YayPay’s advanced reporting capabilities, you can now access real-time aging reports quickly and easily.
With our previous accounting software, we always had to create our own internal reports…Using the Business Intelligence module, I have the ability to make YayPay my one-stop-shop for all my accounts receivable needs.” – Stephen Tracy, Director, People and Operations, CHG Healthcare
Calculate Your AR Turnover Ratio
One key statistic your AR team should calculate at this point is your accounts receivables turnover ratio (ART). This will tell you how effective your team has been in collecting the money owed.
For example, to calculate your ART for a year-end wrap-up, take your AR at the beginning of the year and add it to your AR at the end of the year, then divide the sum by two. This provides you with your net accounts receivable. Next, divide your net credit sales by your net AR. The result is your ART — in general, a higher number indicates that your company is working efficiently.
Calculate Your Average Collection Period
Another important metric to understand as you plan for the next 12 months is your average collection period, which will help you assess if customers are regularly paying within the terms you’ve set. To find the number, simply divide 365 (days) by your ART.
For example, a company with an ART of 12.5 would calculate 365/12.5 for an average collection period of 29.2 days.
You can then compare this number with the standard payment terms offered to your customers. If you typically offer 30 days, and you have an average collection period of 29.2, it means your customers’ payments fall within the window you’ve set.
With your ART and average collection numbers calculated, your accounts receivable team can compare them to results from previous years, identify any problems that may exist, and plan any necessary adjustments to policy.
To find out more about how YayPay can help your accounts receivable end the year strong, schedule a demo today.