SMART Performance Goals For Accounts Receivable That Will Achieve Six Objectives
Today I want to put my nearly 30 years of finance and accounting experience to work and share examples of the best accounts receivable goals and objectives.
Whether you are getting ready for an upcoming performance review or tasked with setting goals for another year, you have come to the right place.
I will start with goals. Then I will show you how to tie your accounts receivable performance goals to the objectives of the accounts receivable department.
Let’s get moving!
Accounts Receivable Goals
The best performance goals for accounts receivable include the following:
- Implement a structured credit approval process
- Offer accelerated payment terms
- Periodically reassess credit limits
- Maintain customer contact information
- Invoice on time
- Contact the customer before payment is due
- Collect on time
- Apply cash promptly
- Resolve discrepancies with customers
- Process refunds and credits when justified
- Reconcile accounts receivable records with general ledger
- Periodically assess the reserve for bad debts
- Identify and prepare relevant performance metrics
- Regularly report to financial management
- Ensure proper segregation of duties
- Automate processes wherever possible
- Attract, hire, retain, and train staff
Next, let’s review these goals individually so you can better understand where I’m coming from.
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
1. Implement A Structured Credit Approval Process
Think like a business analyst and accept only customers with a high probability of paying their bills. Establish credit policies and reasonable credit limits.
2. Offer Accelerated Payment Terms
Optimize customer payment terms consistent with industry standards. Consider offering discounts for accelerated payment options.
For example, 1% off for payment in 10 days; otherwise, the total balance is due in 30 days (1% 10, net 30).
3. Periodically Reassess Credit Limits
Reassess each customer limit at least once per year. Reward growing businesses that demonstrate improving finances with higher limits while reducing limits for others.
4. Maintain Customer Contact Information
Ensure all customer contact information is:
- Captured and accurately maintained
- Backed up in the event of a disaster
- Safeguarded for privacy
5. Invoice On Time
Invoice your customers as soon as possible. Every rule has exceptions, but billing usually should be generated when you deliver the agreed-upon goods or services.
6. Contact The Customer Before Payment Is Due
A few days before payment is due, contact the customer’s accounts payable department with a friendly reminder.
7. Collect On Time
For past-due amounts, initiate prompt, polite, assertive contact to inform the customer that payment is required. Follow through until you make the collection.
8. Apply Cash Promptly
Use a lock box system provided by your bank to receive payments and get credit for cash as soon as it is received. Apply cash receipts to your customer’s balance due within one business day.
9. Resolve Discrepancies With Customers
Most discrepancies come in the form of short pay. Investigate and resolve differences on a timely basis.
10. Process Refunds And Credits When Justified
Process refunds promptly when warranted to maintain good customer relations and comply with any return policies. Do not deduct fees or try to refund only a partial amount unless you have a clear policy allowing that which the customer agreed to.
11. Reconcile Accounts Receivable Records With General Ledger
The accounts receivable trial balance must reconcile to the general ledger monthly. Identify and resolve differences before the next month-end closing cycle.
More reading: Performance Goals for Accountants
12. Periodically Assess The Reserve For Bad Debts
Review the reserve for bad debts at least quarterly to ensure the balance is adequate but not overstated.
Reflect known uncollectable accounts in your company’s reserve for bad debts. Plus, an estimate for not specifically identifiable amounts.
13. Identify And Prepare Relevant Performance Metrics (KPIs)
Identify key performance indicators for the accounts receivable function. Prepare them routinely to measure performance. Several possibilities include:
- Days Sales Outstanding (DSO)
- Number of accounts sent to collection agencies
- Value of bad debt write-offs
14. Regularly Report To Financial Management
Report your KPIs and other relevant information for management in the controllership and finance functions. Demonstrate your value to the company.
15. Ensure Proper Segregation Of Duties
Good internal accounting controls call for proper segregation of duties. Thus, ensure different team members perform designated activities within the order-to-cash process.
For example, strive to separate the following duties:
1. Customer master file maintenance from invoicing
2. Sales order processing from delivery and invoicing
3. Credit approvals and bad debt write-offs from cash applications
4. Invoicing from cash receipts
5. Handling of cash from cash applications
Make sufficient accounts receivable management supervision available for small departments where segregation best practices are impossible.
More reading: Performance Goals for Internal Auditors
16. Automate Processes Wherever Possible
Map out every process and manual activity. Identify areas to automate with technology.
17. Attract, Hire, Retain, And Train Staff
The effectiveness and efficiency of the accounts receivable function depends on your team member’s abilities, skills, and productivity.
Thus, hire the right people. Put those people in the proper organizational structure. Then treat them well and help them develop career plans.
Okay. Let’s switch gears.
Next, I will share critical objectives for your accounts receivable department and how to align your goals with these objectives.
Impress your boss by discussing these relationships with them. So, let’s continue our journey through accounts receivable goals and objectives examples.
Objectives Of The Accounts Receivable Function
Six objectives every accounts receivable department should have:
- Safeguard company cash
- Accelerate cash flow
- Reduce accounts sent to collection agencies
- Minimize bad debt write-offs
- Operate efficiently
- Maintain timely and accurate records
Now let’s align the above 17 accounts receivable goals with the department’s objectives.
Accounts Receivable Goals That Align With Safeguarding Company Cash
Cash is king and the lifeblood of every business. Thus, one of the most critical objectives of accounts receivable is safeguarding cash and money due from customers that will soon become cash.
Focus on these goals to safeguard company cash:
- Implement a structured credit approval process
- Periodically reassess credit limits
- Set up a lockbox collection system with your bank
- Process refunds and credits when justified
- Ensure proper segregation of duties
- Reconcile accounts receivable records with general ledger
Accounts Receivable Goals That Align With Accelerating Cash Flow
Reduce the time it takes for a customer order to be turned into cash to accelerate cash flow and improve your company’s cash position.
Focus on these goals to accelerate cash flow:
- Offer accelerated payment terms
- Invoice on time
- Contact the customer before payment is due
- Collect on time
Accounts Receivable Goals That Align With Reducing Accounts Sent To Collection Agencies And Minimizing Bad Debt Write-Offs
The ultimate objective is to collect every dollar due your company. Yet, achieving 100% collections on all accounts receivable is unrealistic.
Focus on these goals to improve your chances of collecting as much money due as possible:
- Implement a structured credit approval process
- Periodically reassess credit limits
- Collect on time
- Resolve discrepancies with customers
- Regularly assess the reserve for bad debts
Accounts Receivable Goals That Align With Operating Efficiently
Like any operation within a business, the accounts receivable function should operate as efficiently and effectively as possible.
Focus on these goals to improve your operations:
- Identify and prepare relevant performance metrics
- Regularly report to financial management
- Automate processes wherever possible
- Attract, hire, retain, and train staff
Accounts Receivable Goals That Align With Maintaining Timely And Accurate Records
Ultimately, accounts receivable is part of the accounting department and broader finance function. Accurate accounting records and financial reporting are mandates for these areas.
Focus on these goals to improve record keeping:
- Maintain customer contact information
- Invoice on time
- Apply cash promptly
- Resolve discrepancies
- Reconcile accounts receivable records with general ledger
- Periodically assess the reserve for bad debts
Finally, use a proven goal-setting system for your accounts receivable goals. I recommend setting SMART goals.
SMART Goals For Accounts Receivable Department
To set SMART goals, write them down. As you document, make sure each of your goals meets the following criteria:
Specific. Be as detailed as possible about exactly what you want to achieve. What is the desired result?
Measurable. Determine how you will measure progress and completion of each goal.
Achievable. Choose and set challenging goals. However, save time by making only possible plans.
Relevant. Each goal should be relevant to your current role and the overall accounts receivable function.
Time-bound. Every goal you set should have a deadline. Long-term goals should have interim milestones.
Okay. That’s all for today. Next, to wrap up, I have some final thoughts.
Accounts Receivable Goals And Objectives Examples: Wrap Up
First, accounts receivable are a critical part of the order-to-cash cycle. Furthermore, maximizing cash flow is essential for every well-run business.
So, accomplish today’s critical accounts receivable objectives by setting and achieving the proper goals.
Good luck making your accounts receivable department the best it can be.
If you are hungry for more goal-setting advice, check out my entire archive of articles.
Author Bio: Tom Scott founded the consulting and coaching firm Dividends Diversify, LLC. He leverages his expertise and decades of experience in goal setting, relocation assistance, and investing for long-term wealth to help clients reach their full potential.