Jun 17

Accounts Receivable -Customer Onboarding

Effective customer onboarding and credit management are critical for maintaining healthy accounts receivable and ensuring a positive cash flow. Here are some best practices:

### **Customer Onboarding Best Practices**

1. **Comprehensive Information Collection**:

  - Gather all necessary details such as customer contact information, billing address, tax identification number, and authorized representatives.

  - Obtain bank references and payment history with other suppliers if possible.

2. **Clear Communication of Terms**:

  - Clearly communicate your company’s payment terms, including due dates, accepted payment methods, and any penalties for late payments.

  - Ensure the customer understands any discounts for early payment or fees for late payment.

3. **Contractual Agreements**:

  - Have a written contract or service agreement in place that outlines all terms and conditions, including credit terms and payment schedules.

  - Ensure the agreement is signed by both parties before starting the business relationship.

4. **Customer Training**:

  - Provide customers with guidance on how to interact with your billing and payment processes, such as how to access invoices, where to send payments, and whom to contact for billing inquiries.

5. **Documentation and Record-Keeping**:

  - Maintain thorough records of all onboarding documentation, including signed agreements, credit assessments, and communications.

  - Use a CRM (Customer Relationship Management) system to track customer interactions and financial history.

6. **Ongoing Relationship Management**:

  - Maintain regular communication with new customers, especially during the initial stages of the relationship, to address any concerns promptly.

  - Monitor their payment behavior closely during the first few transactions.

### **Credit Management Best Practices**

1. **Credit Assessment**:

  - Conduct a thorough credit check on new customers before extending credit. This may include reviewing their credit score, financial statements, and payment history with other suppliers.

  - Use third-party credit rating agencies or services for an unbiased assessment.

2. **Set Appropriate Credit Limits**:

  - Establish credit limits based on the customer's creditworthiness and your company’s risk tolerance. Ensure the limits are neither too high (which increases risk) nor too low (which may restrict business growth).

  - Regularly review and adjust credit limits based on the customer’s payment history and any changes in their financial situation.

3. **Risk Categorization**:

  - Classify customers into different risk categories (e.g., low, medium, high) based on their credit assessment. Tailor credit terms and limits accordingly.

  - For higher-risk customers, consider shorter payment terms or requiring partial payment upfront.

4. **Continuous Monitoring**:

  - Regularly monitor customers’ credit status and payment behaviors. Be alert to signs of financial distress, such as late payments or requests to extend credit terms.

  - Use automated systems to track and flag any deviations from agreed-upon payment terms.

5. **Establish Clear Credit Policies**:

  - Develop and document clear credit policies that outline how credit is granted, the criteria for setting credit limits, and the procedures for dealing with overdue accounts.

  - Ensure that these policies are consistently applied across all customers.

6. **Early Intervention**:

  - If a customer starts to miss payments, act quickly to address the issue. This could involve contacting the customer to understand the reason for the delay or renegotiating payment terms if appropriate.

  - Implement a structured collections process for overdue accounts, with escalating actions based on the length of delinquency.

7. **Leverage Technology**:

  - Use credit management software to automate credit checks, monitor credit limits, and generate reports on customer credit performance.

  - Integrate this software with your AR system to streamline processes and improve data accuracy.

8. **Customer Communication**:

  - Foster open lines of communication with customers regarding their credit status and any potential issues. Proactive communication can prevent misunderstandings and maintain strong business relationships.

9. **Training and Development**:

  - Train your AR team on best practices for credit management, including how to conduct credit assessments, set limits, and manage overdue accounts.

  - Stay updated on the latest trends and tools in credit management to continuously improve your processes.