Accounts Receivable Management – What is it and how does it work?

Buy Now, Pay Later (BNPL) payment methods have become indispensable in both the B2C and B2B sectors: around 80% of Germans trust purchases on account. The great popularity of purchase on account can be explained by the many advantages for buyers.

For companies, however, allowing their customers to buy on account entails risks: delayed payment which incur burdensome collection and dunning, or complete default. To prevent this, companies need an accounts receivable management system. What this means and what good accounts receivable management looks like is explained below. 

Overview of the elements of accounts receivable management

  • Creditworthiness of potential customers is checked prior to the transaction
  • Overview of liquidity inflows is ensured 
  • Risk of payment delays and defaults is minimized
  • Cash flow is optimized

What does accounts receivable management mean?

Accounts receivable management is a central function in any business organization. It has a significant impact on the company’s cash flow, working capital and balance sheet.

Simply put, accounts receivable management ensures that debtors pay their invoices on time. However, the process behind it is not quite that simple. To ensure that payment terms are met, it is necessary to document and monitor all invoice purchases, which requires several steps. 

Accounts receivable management enables companies to notify customers of upcoming payment deadlines at an early stage. In the event of payment defaults, it takes over the receivables and dunning process.

How does accounts receivable management work?

Accounts Receivable Management covers the entire invoice purchasing process step-by-step. All data and payment targets are documented and controlled: From credit checks to invoicing and dunning. This is the only way to secure the cash flow of a company offering Buy Now Pay Later (BNPL) payment methods.

The Process

  1. Creditworthiness: Before a purchase on account is approved, the buyer’s ability to pay is checked. This is particularly important for larger amounts, such as those involved in B2B business. A credit check is recommended for new customers in particular, but can also be carried out discreetly for existing customers. 
  2. Invoicing: After a purchase has been made using a BNPL payment method, an invoice is created based on the data submitted, which is then sent to the buyer and stored internally.
  3. Documentation: In order to keep track of all outstanding payments, payment terms are documented and controlled. As soon as an invoice has been paid, it is marked accordingly.
  4. Reminder: If an invoice is not paid within the payment deadline, a payment reminder is sent. To minimize the risk of late payment, buyers can also be reminded before the end of the payment period. This part of the process is central to accounts receivable.
  5. Dunning: If buyers do not comply with payment requests, Accounts Receivable Management initiates the dunning process. If buyers do not pay even after a reminder, the case is passed on to a collection agency. 

Why is accounts receivable management so important?

For cash flow

Companies depend on invoices being paid on time. A company’s ability to pay current costs and invoices depends on cash flow and liquidity. According to the study “The Domino Effect: the impact of late payments“, nine percent of invoices in the B2B sector in Germany are not paid within the usual payment period. As a result of late payments, companies miss out on 56 billion euros in cash flow per year. In the worst case, this leads to bottlenecks or even insolvency. 

For customer loyalty

95% of online shoppers would like to be able to buy online on account. When companies offer their customers a short-term financing solution in the form of purchase on account, they increase convenience and trust in the payment process and thus automatically increase the retention rate. Smooth communication further enhances customer satisfaction: reliable accounts receivable management always informs buyers about open invoice amounts and upcoming payment deadlines.

For the workload

The internal accounting department of rapidly growing companies quickly reaches its limits with a high number of orders and invoices. To relieve the responsible employees, an external accounts receivable management system is a good solution that ensures timely payments from customers and at the same time saves resources. Even for online stores with high sales and invoice amounts, accounts receivable management offers relief by simplifying invoicing and payment requests. This allows companies to focus on their core business. 

Accounts receivable management with software solution

B2B webshops in particular often have high invoice amounts to book, which is why a perfectly functioning accounts receivable management solution is particularly important here. If the manual effort becomes too much for a company, intelligent software might help. The advantage of a software is that manual tasks such as invoicing and sending payment reminders can be easily automated, saving vendors a lot of time and resources.

Mondu offers a digital solution for B2B webshops. With Mondu, companies can offer their buyers various BNPL payment methods in their B2B webshop. Vendors can also automate many processes such as payment reminders and dunning letters with the integration of Mondu into the webshop, significantly reducing manual effort and securing cash flow. Mondu takes care of communication with buyers in the event of late payment and assumes the risk of non-payment, leaving companies more time for essential business.

Mondus benefits for B2B E-Commerce and marketplaces:

  • Real-time credit check. Within seconds, new and existing customers are checked by our algorithm – with Mondu, the acceptance rate is >90%.
  • Less operational burden. Mondu supports merchants in the allocation of payments and facilitates the dunning process, leaving more time for the core business.
  • Easy integration. You can seamlessly integrate Mondu into the e-commerce platform or store system of your choice. 

Would you like to learn more about Mondu’s payment solutions? We would love to learn more about your business. Contact us – and let’s get the conversation rolling.

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