Accounts receivables can constitute more than 50% of a healthcare organization's current assets. Managing accounts receivables is critical to the cash flow of the organization. If you were a billing...

What it is:
What it is:
Accounts receivable is an important factor in a company's working capital. If it's too high, the company may be lax in collecting what's owed too it and may soon be struggling to find the cash to pay the bills; if it's too low, the company may be unwisely harming customer relationships or not offering competitive payment terms. In general, accounts receivable leciels co
espond to changes in sales levels.
As a billing manager, I will first try to investigate the credit requests so as to detect the fraudulent applicant as well as the applicants who pay very late.
In accrual accounting, determining exactly how a company generates or burns its cash is not as straightforward as you may expect. Because of the way companies must record their accounts payable and accounts receivable, measuring the efficiency of a company's cash flow requires a deeper understanding than simply saying "cash in versus cash out."
How accounts receivable impacts cash flow
The suppliers in our scenario have their own cash flow considerations in setting how long they're willing to wait to receive payment. For the supplier, letting a customer wait for a little while before paying is called an account receivable. These short-term credits are recorded as cu
ent assets on the balance sheet, and they have an inverse impact on cash flow as accounts payable. Accounts receivable, therefore, are a use of cash.
You can think about it by the example. Let's say the supplier starts the first year with $50,000 in cash and accounts receivable of $100,000 (remember, this is money to be collected, not to be paid). If the supplier allows its customer to pay in 60 days instead of 30, that means the customer gets a free month while the supplier has to wait an extra 30 days to collect that cash. In the subsequent year, that means the supplier's cash flow would have only 11 monthly payments instead of 12. That extra month would, at the end of the year, reduce the supplier's cash flow by $100,000. In this case, that would put its cash balance into the red. Not good.
For accounts receivable, a positive number represents a use of cash, so cash flow declined by that amount. A negative change in accounts receivable has the inverse effect, increasing cash flow by that amount.
Here are the processes you must follow in order to optimally manage all accounts receivable.
1. Establish a “Days Sales Outstanding” (DSO) Goal
How long does the company want to wait in order to get paid from their clients? The number should be as low as possible, but it’s typically between 15 and 45 days. This number will have an important impact on cash flow, so it should be set carefully.
If a company can’t get the expected cash from its accounts receivable, it may need to find it by other means, such as delaying accounts payable, reducing inventory or bo
owing from a bank. The DSO goal is important because a bigger number means the cash flow requirements of the business increases. For example, if a company achieves $90,000 of revenue per month and waits five extra days for a customer to pay (for example, the DSO goes from 40 to 45 days), it may need to find another $15,000 of cash to run the business. (The math is $3,000 per day multiplied by 5 days.)
2. Establish a Credit Policy
This should be a planned company process and not one that is decided by the accounts receivable clerk. It should keep the risk as low as possible and clarify:
Who gets credit: This should be determined by customer track record and checking a database like Dun & Bradstreet to measure credit worthiness.
How much credit is issued: This should be a low number to start. It should be less than the average historical transaction done by the company. Large first-time orders should never be given credit.
How long will the terms be: Having clearly stated payment terms in your service agreement is one of the most important steps in managing accounts receivable. Start with 15 days if possible, and extend them if asked by the customer over time. State a specific date that the payment is due, not “upon receipt” because the customer then has the tendency to set their own date.
Follow the credit policy: Make sure that both the policy and process are followed. There will always be pressure from commissioned sales reps to extend credit.
3. Track Payments Carefully
Most clients want to pay their bills on time. They just need a little help to pay within terms.
To encourage timely payments, proactively call soon after the invoice is sent out to make sure they received it and to ask when it will be paid. Follow up early and often to make sure the due date does not slip. Remember that every business has the right to be paid within terms, so don’t be afraid to ask for the money. If the payment is not received on time, immediately call to see why it was not sent and when it will be.
4. Charge Interest on Overdue Payments
While the company may never collect this interest, it sends a signal to the client that the company is serious about getting paid. It can...