41% of finance leaders identify a lack of visibility over their accounts receivables as their company’s top challenge in better managing cash flow (Bottomline).
If you aren’t tracking your invoices and debtors effectively, it can be challenging to understand which accounts owe what, your team lack confidence when following up with debtors, and your cash flow can struggle.
Below are some proven strategies you can use to ensure you can better track invoices, manage debtors, improve cash flow, and get paid on time.
Invest in an organised system for tracking invoices and debtors
If you don’t currently have the budget to put a system in place for tracking invoices and debtors, try this invoice-tracking template for Google Sheets and Excel.
It is recommended that you implement a digital option for greater efficiency in your invoice and debtor tracking. There are plenty of excellent accounting software options available on the market, such as AccountsIQ, MYOB, FreeAgent, Xero, Quickbooks, and Microsoft Dynamics 365 Business Central, and many more. All of the listed options will allow you to track your invoices and payments in an efficient, searchable, and organized manner.
Most accounting systems also have apps you can add on to enhance the base software to match your business needs. For more sophisticated needs such as adjusting credit limits, viewing your debtor history and communications, and sending personalised payment reminders automatically, consider connecting an ‘app’ specifically designed for accounts receivables, like Chaser.
A step-by-step guide to accurate invoice and debtor tracking
In addition to implementing an organised system, there are a few basic steps that any business can take to ensure success when tracking invoices and debtors.
1) Send accurate, timely invoices
Accurate and timely invoices are vital for getting paid on time. Invoice numbers are the foundation of tracking payments and chasing overdue invoices, so it's essential that these are issued accurately and consistently.
Invoice mistakes can cause delays and issues down the line, so it’s essential to double-check all invoice details before sending them out.
Common mistakes to look out for include incorrect contact details, missing payment information, or errors in critical details such as pricing and product descriptions.
Automation can help reduce the chances of invoice mistakes and save time by automatically sending invoices once an order is fulfilled.
Best practices for issuing invoices include:
- Invoice numbers should be consistent and sequential.
- All invoices should be issued on the same date as the invoice is generated.
- Payment reminders should be sent out regularly to ensure customers are aware of their payment obligations.
- Tracking systems should be used to generate up-to-date records of customer payments.
2) Record invoices
Centralised recording of what invoices have been issued, which have been paid, and which are outstanding is essential for accurate invoice tracking.
This also includes the ability to quickly see what invoices have been settled and which remain outstanding and generate reports that give an overview of customer payment behavior.
It's worth remembering that customer payment data is a resource that can provide great insight into customer behavior. It can be used to inform decisions around credit limits, payment terms, and more.
Segmenting customers by payment behavior is also a great way to identify potential issues in advance and take corrective action to reduce the risk of bad debt.
Strategies for improving invoice data recording include:
- Keeping regular records of customer payments and invoices, including payment dates.
- Automating invoice data entry to reduce manual work.
- Leveraging up-to-date technology for accurate recording of customer payments.
- Maintaining an organised system for archiving invoices and documents related to payments.
3) Monitor due dates
Payment due dates can be tracked in your accounting system, accounts receivable software, or manual invoice tracking spreadsheet.
Due dates should be monitored so your finance team can keep customers informed about what is due when. Payment reminders should be sent in advance of the invoice, on the due date of each invoice, and polite follow-up reminders should be sent if payment isn’t received.
To make sure due dates are monitored effectively:
- Automate task reminders and payment notifications.
- Regularly check due dates to ensure they are accurate, up-to-date, and in line with customer payment behavior.
- Use payment portals to securely process payments.
- Establish an effective system for chasing overdue invoices.
4) Assess and adapt
No strategy for invoice tracking is perfect, and it's essential to regularly review internal processes. As customer payment behavior changes or technology evolves, businesses should ensure their strategies adapt to remain effective.
It's also important to assess the success of any changes made to ensure they have the desired effect on payment flow and cash flow.
Implementing KPIs (Key Performance Indicators) and tracking performance over time in your accounts receivables team can help ensure that your receivables strategies are effective. These KPIs normally include a number of metrics, such as:
Days sales outstanding
Average days delinquent
- Accounts receivable turnover ratio
- Collections effectiveness index
Adjustments can then be made to processes and strategies in response to the data provided by KPI monitoring.
Reduce late payments with effective invoice and debtor tracking
By leveraging the right technology and taking advantage of the data produced, businesses can protect themselves from the risks posed by late-paying customers and ensure timely payments.
In addition to protecting cash flow, effective invoice and debtor tracking also offers valuable insights into customer behavior that can be used to shape payment strategies and terms.
By implementing the strategies discussed in this article, businesses can develop an efficient and effective invoice-tracking system and reap the rewards of accurate data-driven debtor management.
An excellent place to start your journey toward effective invoice tracking is this free invoice tracking template for Google Sheets and Excel. When you are ready to use more sophisticated and automated debtor tracking, speak to Chaser about how receivables automation can support you.