Accounts Receivable (AR) management is an important aspect of financial health for companies. Effective AR processes ensure that cash flow remains steady, which is essential for meeting operational expenses and investing in growth opportunities.
In the construction industry, managing accounts receivable (AR) is not just about billing clients but also about sustaining cash flow.
To enhance the efficiency of your accounts receivable management, consider working with a professional outsourcing provider.
Outsourcing accounts receivable is a key strategy for companies aiming to improve their financial operations. Such service providers offer proficiency, cutting-edge technology, and workforce to streamline your accounts receivables operations.
Utilizing the specialized skills of external partners, businesses can improve cash flow, boost financial productivity, and concentrate on their primary business areas. Such service providers offer proficiency, cutting-edge technology, and workforce to streamline your accounts receivables operations. The additional advantages of cost reduction, risk management, and the ability to scale make this approach even more compelling.
This blog post delves into what AR outsourcing is, and what critical components of AR management tailored for construction companies can be outsourced to third-party service providers.
When outsourcing AR services, choose an outsourcing vendor with a focus on AR services. Next, consider a service provider that has a system that fosters positive client relations and ensures prompt payments.
It is also important to partner with a vendor experienced in AR services and best practices.
When considering a service provider, it’s crucial that they understand the American Institute of Architects (AIA) billing standards, which include the Schedule of Values and Progress Billing.
Experienced vendors are also knowledgeable about regulatory updates, and offer process improvement suggestions. Their expertise can enhance your AR processes, such as;
A monthly AR aging review is an important diagnostic tool generated at the end of each month that helps businesses keep track of their accounts receivable, making companies prioritize and evaluate their collection efforts.
By delegating the assessment of your AR aging report through outsourcing, you save time and effort on the steps needed to follow up on late payments and maintain a healthy cash flow, such as immediately following up on overdue accounts.
Deposits must be recorded in the company’s financial system. This not only ensures that the books are up to date but also provides a real-time view of the company’s cash position.
Outsourced AR staff can ensure that each deposit should be matched to its corresponding invoice, ensuring that your AR ledger is updated.
When customer payments come in, they should be processed efficiently to keep the AR cycle moving. This means not only recording the payment but also acknowledging it with the customer and updating the project’s financial status.
Outsourced AR staff can process customer payments with the use of reliable AR software to automate payment entries.
Invoicing is one of the most important aspects of AR management. They serve as the official request for payment and the starting point for the AR cycle. Invoices should be clearly stated, detailed, accurate, and sent out electronically in standard invoice templates once services are rendered.
Outsourcing AR invoicing in construction accounting companies can significantly enhance the efficiency and accuracy of financial management. By incorporating Project Billing, invoices are detailed, with clear descriptions of the work as it’s completed, rather than wait for project completion.
As per the Schedule of Values, the work completed and materials used are also detailed, along with any other charges. This transparency helps to minimize disputes and facilitates faster payment.
Billing packets, or draws, are requests for payment based on the progress of a construction project. Aside from invoices, they may contain contracts, change orders, and other relevant billing documentation. These packets can be properly and carefully assembled by outsourced AR staff, and ensure proper documentation, such as signed and authorized lien waivers, timesheets, and material receipts.
Completing this packet properly, including all relevant documentation as outlined in the AIA standards, gives clients all the information they need to process your payment request without delay.
Scanning deposit information and integrating it into your AR system can greatly enhance record-keeping accuracy. Digital records via scanners or mobile apps are easier to store, search, and organize, which streamlines the entire AR process. Outsourced AR staff are capable of document management and record keeping and can back up digital records securely.
This is the final step in securing payments.
When planning to deposit to the bank, outsourced AR staff can schedule regular bank runs to deposit checks, and log deposits made to be used as reference in the future.
These are important AR functions you can outsource to an external service provider.
Effective AR management is essential for construction companies to maintain a steady cash flow and support ongoing operations. For businesses seeking to enhance financial outcomes, working with a trustworthy accounts receivable construction outsourcing firm is advisable. Such a partnership improves overall accounts receivable operations.
Outsourced AR staff observe the proper steps and tips in invoicing, payment processing, reporting, and billing compliant to AIA standards, enabling construction businesses to maintain a healthy cash flow and build strong relationships with their clients, ensuring that your business is well-positioned for financial success.
We hope this blog post meets your needs and provides valuable insights into outsourcing AR management for construction companies.
Outsource Construction Accounting Services to RedHammer
RedHammer focuses on providing accounting services tailored for the construction industry.
The firm is capable of handling the challenges of accounting so construction businesses can focus on their core operations. Outsource AR and overall construction accounting to RedHammer today.
