Leveraging Accounts Receivable for Xero: Essential Tips for Small Businesses

Heading into the world of Accounts Receivable can be complex, especially for small businesses. Being able to understand and manage your Accounts Receivable (A/R) is an important part of maintaining a good cash flow as well as aiding in strategic business decisions and the overall financial health of the business. Understanding how important it is, and how to effectively manage it, is a must. This guide takes a look at some top tips for small businesses looking to utilize Accounts Receivable for Xero.

What is Accounts Receivable?

Often abbreviated to A/R or AR, this refers to outstanding invoices or other forms of. money that’s owed to the business. These unpaid bills are from customers who have purchased goods on credit. Any promise to pay later is considered as an account receivable in business accounting.

This is very important for small businesses as the management of A/R is directly linked to the cash flow within the business. Promptly collected payment is necessary to pay daily operating expenses, purchase more inventory or invest in the growth of the business. With poor A/R management, the business can find itself short of funds and even in financial distress.

Top A/R Tips for Xero Users

Properly managing A/R is therefore a must. And this is where platforms like Xero can be incredibly useful for small businesses. For one, it aids in invoicing and payment processes. Xero can automate invoices, setting up recurring invoices for regular clients, which can save time and means that there’s more consistency over time. These generated invoices can then be sent right away, or the moment a sale is agreed upon. They will include clear payment terms so all members of the process know exactly what is owed and to whom. This process further helps to simplify payments, as it is possible for small businesses to connect payment services and credit card options to the Xero account. It makes it a lot easier for clients or customers to pay their outstanding payments very quickly. A top tip here is to also offer incentives during this process. Payment discounts can be offered to encourage faster payments from customers.

Collection and monitoring is also improved when using the Xero platform. Small businesses can use automated reminders, which can be customized to ensure accuracy. Additionally, automation allows for speedy follow-ups rather than waiting for a missed payment. A/R aging reports can be easily monitored through the platform and should be, as it helps to identify which are the outstanding payments. This enables the business to prioritize any outstanding payments and collect those first. The dashboard on Xero also gives businesses a quick snapshot of the overarching financial situation and includes who owes money. Utilizing the dashboard is key to quickly and efficiently checking reports and seeing what the situation is.

Finally, using a platform like Xero helps small businesses when it comes to policy and cash flow. Businesses should create established policies which can then be communicated clearly to their customers. This should include clear payment terms and conditions, all of which can be crafted on the platform. Additionally, late payment penalties can be implemented. This is not always necessary, but worth considering, especially if some clients are identified as regular slow payers. Credit checks should and can be performed here, especially for new customers, which assess their ability to pay the bill. Confirming eligibility before making a sale ensures cash flow down the line and the overall success of the business.

Considering all of these aspects will help small businesses to better manage their finances and cash flow.