Accounts Receivable (AR)
Accounts Receivable (AR) recovery refers to the process of collecting outstanding payments from customers who owe money for goods or services provided. It involves efforts to recover overdue or delinquent accounts to improve a company’s cash flow and minimize financial losses.
Here’s a detailed breakdown of what AR recovery typically involves:
Identification of Outstanding Receivables
The first step is to identify which invoices or accounts are overdue. This often involves reviewing aged receivables reports that categorize outstanding invoices by how long they have been overdue (e.g., 30, 60, 90 days).
Contacting Customers
Efforts are made to reach out to customers who have overdue accounts. This can include sending reminders, making phone calls, or using other communication methods to encourage payment.
Negotiating Payment Plans
For customers who are unable to pay the full amount immediately, companies may offer payment plans or settlements to recover the amount over time.
Assessing and Managing Risk
In some cases, companies may need to assess the risk of recovery and decide whether it’s worth continuing collection efforts or if it’s time to escalate the process.
Escalation to Collection Agencies
If internal collection efforts fail, the company might involve third-party collection agencies to recover the debt. Collection agencies specialize in pursuing overdue accounts and have various strategies for recovery.
Legal Action
As a last resort, companies might take legal action to recover outstanding amounts. This could involve filing lawsuits or seeking judgments against the debtor.
Updating Records
Once a payment is received, the AR records are updated to reflect the new balance and the account status.
Analysis and Improvement
Companies often analyze their AR recovery process to identify inefficiencies or patterns that can be improved. This might include evaluating credit policies, adjusting payment terms, or enhancing customer communication strategies.