Doing Business in Indonesia: Implementing Accounts Receivable Collections
Let us make it a little fun to explain the concept of Accounts Receivable Collections. You have a group of friends and go out for dinner. After you eat, the bills arrive. After you pay, your friends thank you for the dinner. The next time, they say they will pay the bill.
In this situation, your friends owe you the next dinner. It’s something that you’re expecting to happen. You just don’t know how soon. In business, when you’re expecting a certain amount from your client after you’ve given the products and services and you don’t expect them to pay right away, although they will, it’s called Account Receivables (AR).
Steps in Implementing Accounts Receivable Collections
Step 1 – Device a Collection Plan
Planning involves the setting up of objectives for your Account Receivables Collections, identifying materials and supplies that you need, writing down procedures for achieving your objectives, and creating a rubric to gauge the implementation of your plan. There’s a lot of formats for writing a Collection Plan. You can either search and download from the internet or can devise your own.
In writing your Account Receivables Collections, however, you need to answer the following and integrate it into your paper.
- The payment history of your customers. Your approach for good payers would be different from delinquent ones of course. You can be a little bit lenient to the former and a little bit stricter to the latter.
- The cash flow of your company. As much as you want to extend credit to all your customers, sometimes you just can’t. This is to maintain a good cash flow for the company. You can either limit the amount of your credit to customers or trim down the number of customers to whom you give credit.
- The standards of the industry. For instalment sales of cars and motorbikes, they usually just give 1-3 years for their customers to fully pay for the merchandise. You can either conform to this or make a better offer by extending it to 4-5 years. But of course, every decision you make comes with a risk. So, it’s better if you have thought about it well before executing anything.
Step 2 – Document Processes for Account Receivables Collections
You must document the different processes you employ to make a collection in order to properly describe it, make some evidence, and gauge if you want to do so eventually. For example, the issuance of billing. Some errors may take place in the form of human error. If you use a logbook to temporarily record some of the information on your billing, which you later encode in a computer, errors could take place when you misread the information from the logbook. The documentation may help in identifying where did you go wrong.
Another use of documentation is to prove something. There are times when customers complain that you have overcharged them and they would show you their proof. It’s not that you don’t trust them, but you still have to look for some other documentations like your backup papers and computer database to verify their claims.
Step 3 – Log All Charges and Expenses at the Same Time
Scanning documents like receipts, orders, and requests would facilitate faster and efficient transactions, especially for those repeat ones as you already have some of their information available. With the work from home setup of some companies due to the Pandemic of COVID-19, these softcopies really mean a lot.
Step 4 – Give Incentives for Customers Who Pay Early
One of the effective ways to have a better Account Receivables Collections is to give certain discounts or freebies to customers when they are prompt to their payment. Although it’s just a small thing or amount, it still motivates your customers to pay early especially when you make them feel how thankful you are to them.
Step 5 – Nurture Your Relationship with Your Customers
Although some customers give us headaches sometimes when they don’t pay on their payables on time, we still have to realize that our business continues to operate because they patronize our products and services. There are many companies offering the same products and services that we offer but these customers have chosen us. Let’s be friendly with them as much as we can and in everything we do.
Step 6 – Always Have a System on How You are Going to Get the Payments from Your Customers.
Even your number one customer in terms of paying early and on time on their obligations can run out of money. A sudden earthquake, typhoon, or death of loved ones can make this possible. Even we feel for our customers, business is business and we need to have a system of how to get those payments. So how exactly can we do this? Here are our suggestions:
- A week before their due, send your customers some reminders.
- On the day of their due, before the day ends, ask them by phone calls if they’re paying today or not. If the answer is no, try also to ask the reason why.
- Visit them in person after 3 days of their due and ask them why they weren’t able to pay and how can you be of help to them.
- After 3-5 days of your personal visit and nothing happens, send them a demand letter.
- Refer the problem to the debt collection agency if nothing happens despite all your effort.
Implementing Accounts Receivable Collections Should Not Stress You Out
If you need to implement your Accounts Receivable Collections to the next level, we at 3E Accounting would like to help. We’re among those known Indonesia bookkeeping experts that can offer quality Accounting and Bookkeeping Services for your company.
You can use the Contact Us of this page to reach us.