5 Best Practices to Streamline Your Accounts Receivable Process

MHC Marketing    January 11th, 2022

5 Best Practices to Streamline Your Accounts Receivable Process banner

Your new seller just scored a huge account: Everyone involved in the sale is celebrating and reveling in this tremendous success. Then the panic hits you: When will this money show up in your account? Have your other clients paid you yet? Will you be able to buy the equipment or supplies you need next month?

For most business owners, accounts receivable is a significant source of worry. But when managed properly, the accounts receivable process allows your business to grow exponentially without adding stress to your plate. This piece defines the accounts receivable process, outlines its typical steps, and offers tips and best practices to optimize your accounts receivable.

What Is the Accounts Receivable Process?

Accounts receivable (AR) refers to money owed to a business for goods or services sold. In other words, a company has made a sale but hasn’t yet collected cash from the customer. This happens quite often as many businesses allow customers to pay for goods and services using credit. An example of this might be when a patient gets a blood test or X-ray. Usually, patients don’t pay upfront for these services; instead, they wait until they receive a bill in the mail.

Another business-to-business example is consulting services. Let’s say a firm wins a contract to consult for a company in the public sector. The firm would wait to send an invoice until the end of the month because their fee is based on the number of hours they work.

These are simple examples, but think about how difficult it is to track down hundreds or thousands of these owed payments. As a company grows, it’s easy for AR to spiral out of control without a solid process in place. Luckily, the steps to creating an AR process are simple.

The Four Steps in the Accounts Receivable Process

 The basic steps in the accounts receivable process are:

1. Establish a line of credit for new customers 

2. Collect invoice information 

3. Send out

4. Track

Let’s delve into each one of those steps below.


The first step in your AR process should be to institute a credit application process. As part of this process, the AR department receives credit applications from new customers. The department will collectively decide whether they offer goods and services based on an individual or business’s credit. If new clients are approved, the credit officer establishes a credit limit and fully discloses their payment terms. These terms include payment deadlines, interest rates, borrowing terms, and more. 

Companies differ in how they set up their terms. Smaller companies may opt for shorter payment schedules since they need higher cash flow, whereas larger companies have the capital to wait longer. Terms can also vary based on customers’ credit and payment history. For instance, clients who have paid their bills on time are likely to have a higher credit limit and an extended payment schedule.


Once a customer is approved to purchase on credit, you need to collect invoicing information and draft an invoice. Invoices are documents sent to customers explaining the products or services they bought, the cost of those products or services, and the date payment is due. Each invoice has a unique number so that the AR department can associate incoming payments to the proper customers. 

Historically, invoices were on paper. While some companies still mail physical invoices, many companies send electronic invoices to a business’s or individual’s email address, making the invoicing process cheaper and more streamlined.


It should go without saying, but be sure to actually send invoices to your clients. You can do this manually if you’re mailing paper invoices or electronically via email. Send your invoices as soon as they are ready in order to encourage on-time or even early payments.


This is perhaps the most critical step in the AR cycle, and is typically completed by an accounts receivable officer (ARO). An ARO’s primary responsibility is tracking all payments and letting customers know their payment has been received.

This part of the AR process is challenging for smaller companies using spreadsheets or QuickBooks to print, send, and track invoices manually. Larger enterprises circumvent this cumbersome process by using automated systems to monitor their invoice activity.

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Accounting for Accounts Receivable

Accurately managing your AR books is vital to the liquidity of your business. After all, a solid AR strategy equates to increased cash flow. To get your accounting in tip-top shape, ensure that all invoices describe the services or goods purchased, the amount owed, and the date you expect payment. From there, you’ll need to decide on a method to calculate your accounts receivables: cash-basis accounting or accrual-basis accounting.

In cash-basis accounting, expenses are considered expenses when you pay for them, and revenue is considered revenue when cash is received. With this form of accounting, you track AR separately from revenue, which means revenue is not recorded until the money is received.

Conversely, accrual-basis accounting considers revenue to be revenue when a sale is complete, meaning that revenue is recorded immediately. This form of accounting has an inherent risk since the customer may or may not pay you. But in the case that they don’t pay, you can count any losses as expenses.

Best Practices for Your Accounts Receivable 

No matter whether you use accrual-basis accounting or cash-basis accounting, there are some  universal best practices that prevent you from leaving money on the table, and will make your AR process run smoothly. Let’s dive in:


First and foremost, you need a straightforward, step-by-step AR process. As mentioned, the AR team members need to establish credit terms, create invoices with all the details a customer might need, and send those invoices. Beyond that, you’ll need to develop a collection process and outline the steps to handle incoming payments. This may sound tedious, but starting with a healthy foundation helps ensure that nothing falls through the cracks.



A good way to get everyone on the same page is to document standard operating procedures, otherwise known as SOPs. Having a standardized way of doing things reduces billing errors and streamlines the onboarding process for new employees in the accounting department. But SOPs aren’t just for finance teams; they should also be visible to the entire business. 

Clients may ask questions during the sales cycle or when working with customer success managers or client partners, so external-facing employees should know the AR process at a high level. With so many eyes on SOPs, don’t forget to update them whenever any part of the AR process changes.


Although you might think of relationships with your customers as transactional, they still deserve exceptional customer service. How you treat them regarding something as sensitive as payments will make a difference down the line. Extending payment periods and establishing a good, friendly working relationship with customers is good karma for future interactions.



An excellent way to incentivize your customers to pay early is to offer them discounts. For example, you might offer a 2% discount on a customer’s final bill if they pay 14 days before the invoice due date. 

Of course, you could also come at this from the opposite direction by charging late fees. You could include a clause in your policies regarding your right to drop customers after a certain number of missed payments or credit penalties. Regardless of your incentive structure, you should share your policies as soon as you are confident your prospect will commit. That way, they know where you stand and how your AR process works.


Of course, there will always be clients who don’t pay. To mitigate this risk, you need a clear, formalized collection process. Consider following this general practice:

  • Politely inquire about the customer’s payment – You never know what a customer might be going through. Some may be unhappy with your service, while others may be working at a large company with a less-than-stellar AP process. No matter what the issue is, it’s worth reminding them about payment. It’s entirely up to you, but it’s worth mentioning that some companies give customers with a good track record a bit more leeway on their deadlines.
  • Follow up if you haven’t received payment in five business days – Politely prompt them again, in case someone is just returning from leave or vacation.
  • Send a letter of demand at 30 days – After a month, it’s fair to send a letter of demand outlining the payment owed.
  • Send a final letter of demand at 45 days – When 15 more days go by without payment, it warrants a second letter.
  • Forward the case to your collection agency or attorney – At this point, you’ve received no responses and are still likely owed a significant amount of money. Reach out to a collection agency or lawyer to discuss your options.

Is Automation the Answer?

The AR cycle is a complicated one with several working parts. And if you’re still manually sending out invoices, collecting credit applications, and traversing the collection process, you’re essentially inviting potentially costly mistakes. There are many new ways to automate accounts receivable, but they come with both pros and cons.

The Pros of AR Automation 

Let’s review some of the benefits of AR automation:

  • Streamlined AR workflow – Automation eliminates the need to prepare, send, and hunt down invoices by hand.
  • Reduced potentially costly errors – Everyone makes mistakes, particularly when invoices are constantly added to their queue. Automation makes errors less likely, saving you money in the long run.
  • Real-time reporting – Since the software continuously monitors when invoices are sent and when payments come in, you can view your current cash flow at a glance.

The Cons of Automation 

The pros above make automation sound great, but it may not be feasible for every company. Here are a few reasons why:

  • Implementing takes time and careful planning – While automation can be helpful, don’t expect your AR process to be transformed overnight. You need to be realistic  about your timeline and choose an implementation approach that works best for your company. This could mean automating departments one at a time instead of rolling out company-wide automation. Even though the best automation solutions are ready to go out of the box, taking the time to solidify your process and pick an ideal execution strategy will pay off by freeing up staff to work on more meaningful tasks.
  • Potential formatting and content limitations – Many AR automation platforms use optical character recognition (OCR) to speed up the process of inputting documents into their system. However, some OCR technology has trouble accurately reading specific documents, deciphering symbols and characters from other languages, and processing any handwritten documents. Quality software platforms utilize more sophisticated OCR technology that doesn’t fall prey to these issues.
  • Can be costly, without the right solution – There are so many automation solutions out there, but they can be prohibitively expensive. Fortunately, technology is moving towards more economical cloud-based platforms. Software-as-a-service products lead to low acquisition costs, faster deployments, and instant upgrades.

Benefits of AR Process Automation with MHC

When you have the right process in place and quality tools, the pros of automation significantly outweigh the cons. MHC  is a leader in the AR process automation space. With it, you can digitize and automate your AR process to analyze your progress in real-time. In addition, its simple yet flexible interface confers many benefits with respect to invoice delivery and approval, payment processing, and even customer communications.


AR automation involves electronic invoicing so invoices can be sent directly to a customer without any manual interference. Customers will receive their invoices instantly via email, making it more convenient for them and saving you time on postage and time delays. MHC’s solution even allows you to customize your invoices according to your needs.


MHC leverages top-notch optical character recognition (OCR) technology to digitize and accurately compile invoice and payment information. Plus, OCR has exceptional document capture capabilities, further decreasing the already small potential for error.


Invoice approvals are normally a painstaking process in which AR staff review each document individually. However, with an automation platform like MHC, your AR team can facilitate quick approvals through an easy-access system and even set up rules for exception handling.


Rather than processing each payment by hand, MHC enables rapid payment processing, sends out payment notices, and flags late payments automatically. AR teams can then follow up on any next steps on a customer-by-customer basis.


MHC offers a customer communication management system or CCM. CCMs make invoices more personalized and relevant to each client and allow customers to choose when and how to get their invoices. As a result, MHC’s CCM functionalities shorten the customer journey and make communication easier for both parties.


MHC continuously tracks invoice and payment activity so that AR teams can create ad-hoc reports at any time. It also sends AR teams alerts when customers are past due, and tells you by how much. These real-time reporting features and alerts make tracking payments and vendor performance a breeze.


MHC’s platform offers native integrations with the most popular enterprise resource planning (ERP) software, including Oracle, SAP, Microsoft, and more. This makes it easy to seamlessly transfer information between the two systems and maintain your books.

Learn More About AR Automation with MHC

Without a savvy account receivables department to stay on top of your invoices, your cash flow might run amuck or even worse, dry up to dangerous levels. Even if you have a sound accounts receivable process, you can elevate it to the next level with automation. 

Not only will automation save you and your employees time, it will also improve communication with customers and protect your team from making costly mistakes. With all these advantages, it’s easy to see how AR automation gives companies an edge over their competitors. Want to learn more about how MHC can help you develop smooth accounts receivable processes? Visit our website today. 

Team MHC

Team MHC consists of a multitude of roles, functions, and expertise within MHC. With extensive combined experience in accounts payable and customer communication management, Team MHC has a unique insight into how to empower people using solutions that streamline processes while enhancing customer communication. Working alongside field experts in various industries and company sizes, Team MHC has garnered impressive thought leadership knowledge that we are excited to share with our readers. Including Aragon’s 2022 Women in Tech winner Gina Armada, CTO Dan Ward, VPs of Finance and Customer Service, and other talent that runs the spectrum of technology ability, Team MHC offers a mastery of skills to benefit our customers and prospects alike.


Get to Know MHC!

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From document capture and content creation to employee self-service and other critical use cases across the enterprise, you can combine and configure MHC’s automation solutions to empower teams to meet goals today – and for the long game.

Download our guide and find out how MHC Automation can help you improve service, manage compliance, and drive ROI.


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