Receivables management is an essential part of any business– after all, it’s how you get paid for the goods and services you provide.

For such an important asset of a food and beverage business, receivables can be wildly unpredictable, making the job of the receivables department an uphill battle.

Despite this, there are plenty of best practices you can put in place to help streamline accounts receivable processes and get paid faster and more easily. Especially in 2024 with the plethora of receivables software options now available.

In this blog, we’ll share ten receivables management best practices for food and beverage suppliers.

The benefits of a streamlined receivables management process

Streamlining your receivables efforts is important for a number of reasons. Business results include:

  • Reduced labour hours spent on manual payment processing 
  • Improved cash flow and more reliable receivables
  • Added time back to spend on more strategic-level work
  • Improved relationships with customers 
  • Decreased manual data entry, reducing data errors 
  • Improved data accuracy for important business decisions 

Best practices for your receivables department

If you’ve just started managing AR or are looking to overhaul your receivables management process at a food and beverage business, the following best practices will provide a solid place to start. 

Be sure to check out the additional links throughout the sections that provide more detailed guidance and information on receivables best practices.

1. Set up digital, electronic payments for your customers

Equipping your team to receive digital payment methods, like credit cards, EFT/ACH and wire transfers, is a critical step in creating a seamless receivables management process. 

Outdated offline payment methods, like cash and cheques, can slow down operations for your receivables department, making it virtually impossible to automate and pull payments on a schedule. The more that your payments come through offline payment methods, the more manual payment processing, data entry and dunning your team needs to do. This is not ideal. 

Make an effort to transition your customers to online payments, so you can get more control over your accounts receivables.

2. Securely store payment information for pull payments

Collecting and storing payment information is a critical part of being able to automate accounts receivable. Not only does it save your team from having to personally contact each account for invoice payment after every month or every shipment, but it also allows you to pull payments on a schedule. This provides you with more control over your cash flow and when you get paid.

However, it’s important to remember that you must be PCI-compliant when storing your customers’ sensitive payment information for pull payments. Failure to do so can result in consequences for your business and customers.

What is PCI compliance?

PCI Compliance is like a rulebook for businesses that accept credit or debit cards for payments. These rules, also known as the Payment Card Industry Data Security Standard (PCI DSS), were made by a consortium of the top credit card companies. The goal is to keep the card information of customers safe during and after they buy something.

Learn more in the blog: What is PCI Compliance? What happens if your Accounts Receivable process isn’t compliant?

While being PCI compliant is extremely important, it doesn’t have to be complicated. A payments partner like Notch will automatically store your customers’ payment information in line with PCI compliance standards.

3. Establish a credit and terms policy

After bringing payments online, it’s important to consider your payment terms and which customers you’ll allow to purchase on credit.

You may want to keep customers who have repeated issues paying on time or who don’t have a good credit history on cash-on-delivery (COD) terms, so you can be sure you’re paid immediately for the goods.

But for the majority of your customers who are in good standing, net payment terms can help make expectations clear on when you expect payment for the delivery. It provides your customers with a bit of leeway and makes it easier for them to manage their own cash flow, which can be incredibly important in the food and beverage industry where profit margins are tight.

When choosing whether you want to offer net 30, net 45, or other payment terms, be sure to consider your target days sales outstanding (DSO). Extending your terms will increase your DSO, increasing the time it takes to get that cash flow from the sale. If your business operates with tight margins, you may want to consider shorter payment terms.

The magic of bringing payments online is that once you decide on your payment terms, you can schedule pull payments on an agreed-upon date that falls in line with your credit terms. Ideally, this helps ensure customers would never pay late or miss a payment. 

Note: One important element to consider is credit checks. When working with a new customer with undetermined credit responsibility, you may want to run a credit check before you decide whether or not to put them on terms or keep them on COD.

4. Select a payment partner with competitive processing rates  

Another important element of receivables management is choosing which payment processing partner you’d like to work with. Different companies will offer varying rates and fees with different processing times. 

Finding a provider that can offer lower credit card processing rates will help you improve your profit margin. Additionally, some partners will be able to process EFT payments faster than others. Doing your research and making sure you’re getting the most bang for your buck is crucial for profitable accounts receivables.

5. Measure and track food and beverage supplier KPIs

As the accounts receivable department, it’s your job to ensure you’re measuring key accounts receivable metrics and data points. Keeping track of key performance indicators (KPIs) for food distributors will help ensure your receivables management is trending in the right direction and you’re helping the business stay profitable and cash-positive.

KPIs for food suppliers to measure

  1. Days Sales Outstanding (DSO) measures the average number of days it takes a business to collect payment after a sale has been made. A high DSO indicates that a company is taking longer to collect payment, which can lead to cash flow problems and negatively impact a company’s financial health.
  2. Accounts Receivable Aging tracks the average age of unpaid invoices, helping companies identify which customers are paying on time and which are falling behind schedule. A high accounts receivable aging indicates that the company is taking longer to collect payment, which can negatively impact cash flow and create challenges for financial management.
  3. Days to Pay (DTP) measures the average number of days it takes a customer to pay an invoice after it has been issued. A high DTP can indicate that a customer is having cash flow issues, and may not be able to pay their bills on time. Tracking DTP can help distributors identify payment issues and take proactive steps to address them.
  4. Average Invoice Amount measures the average amount of money customers spend per invoice, helping companies identify areas where they may be over or undercharging for goods and services provided. Tracking this metric regularly can also help organizations better understand their customer spending patterns and make adjustments accordingly to maximize profits.

6. Create a dunning process for late/non-payments

Dunning is a not-so-fun, but necessary part of the receivables process. Dunning involves communicating with customers to track down outstanding payments. 

For many businesses, the process of dunning can be incredibly time-consuming and manual. It often involves looking at outstanding accounts receivables, confirming non-payment, tracking down contact information, and reaching out to the account to remind them payment is due. Some receivables departments spend hours a week on the dunning process.

However, there’s a better way. Using automation to take care of dunning communications can free up your AR staff’s time. Whether you choose to use accounts receivable automation for dunning or not, we recommend having a set process in place with communications that escalate in urgency to ensure you’re taking a systematic approach.

Platforms like Notch send automated reminder emails when payments are overdue. 

You can also use these email templates for following up on outstanding invoices.

7. Minimize manual data entry 

Receivables management can come with a lot of manual data entry work, like reconciling payments and updating payment statuses. It’s been accepted for a long time that manual data entry is just part of the job, but nowadays there are plenty of tools to help with accounts receivable automation. Limiting the amount of manual data entry should be a goal for all modern receivables departments.

Look for a tool that integrates with your accounting platform to automate accounts receivables and sync data back to your accounting system. This will help cut down hours of manual work per week and improve the accuracy of your data so you can make more informed business decisions.

8. Keep an accurate, up-to-date statement of accounts

It’s not enough to just have accurate accounts receivable data outlining invoices due and bills paid–it’s also important to have an up-to-date statement of accounts that you and your customers can access on demand. 

A central place where this information is automatically updated can provide massive time savings to your receivables department. They won’t have to respond to requests for a statement of accounts and then manually generate and verify them.

Look for a software platform that offers a statement of accounts that’s accessible to your customers in an online portal, so they can see where their accounts payables stand with you. Bonus points if the customer can upload their payment information and make payment in the same place.  

9. Design an automated tech stack for receivables management 

One of the biggest “hacks” for receivables management these days is building in accounts receivable automation. As we’ve mentioned several times in this blog, manual receivables management is on the out. Technology has advanced to the point that it can take a lot of the heavy lifting off receivables departments, so they can focus on more important things.

Technology has also gotten so great that it’s no longer complicated or confusing to set up AR automation. Tools like Notch come ready out-of-the-box to integrate with the most popular accounting software, like Quickbooks Online and Netsuite. 

10. Make it easier for your customers to pay you

The final best practice for receivables management is to make it easy for your customers to pay you. You need to get paid to run your business, and no customer wants to pay late or forget an outstanding payment. However, we all know running a food and beverage business can get hectic and things fall through the cracks. The more you do to help your customers pay on time, the happier they will be to work with you.

Providing an on-demand statement of accounts link, scheduling payments so customers don’t need to remember to push payment to you, providing friendly invoice reminders and other ideas mentioned in this blog are all great ways to strengthen your relationship with your customers and position yourself as a partner in their success.

If you’re looking for a tool to help you implement the suggestions above, reach out to our team to discuss Notch’s accounts receivable automation platform.

Want to learn more about streamlining your accounts receivable processes? Download our free guide: Streamline Your AR: 6 Ways to Increase On-Time Payments and Improve Cash Flow