Laws in the US have changed to protect young adults from predatory lending. The Credit Card Act was created in 2009, setting age requirements for obtaining credit.

The US requires young adults aged eighteen to twenty-one to prove independent income as an ability to pay back credit debt and build their credit history. Let’s explore why you must be eighteen and the ways to use a credit card credit before turning eighteen.

Applying vs. Qualifying for a Credit Card

You can apply for credit cards once you are eighteen, and although you can find many credit cards, you may be shocked that credit bureaus could turn down your application.

A credit card issuer wants to make money with their credit products but also wants to ensure they are not taking a risk by extending credit to you when setting credit card age requirements.

You must be eighteen to enter legal contracts with another person or institution. This is why you cannot get a credit card before turning eighteen. The credit card act adds protections for young adults. These may still make it difficult to get a credit card.

Most young adults do not have the credit history or income to qualify for a credit card, and if a banking institution does decide to give you one anyway, you will be subject to higher interest rates. These high-interest credit cards are bad if you have not been coached on managing credit.

Ensure you qualify for a credit card before applying. If you have sufficient income, are a cosigner in some instances, or already have some positive credit history, you may qualify for a credit card.

When applying for a credit card, research the cards you are interested in. Use tools to review your credit and your credit score. You can also work with a banker at the institution you are applying for to do a pre-qualification.

Applying for credit can hurt your credit score. Banks see multiple recent applications for credit as a red flag. This could hinder your chances for approval.

Therefore, it is good to understand the difference between applying and pre-qualifying for credit accounts. Always seek pre-qualification before applying to prevent an inquiry from being added to your credit profile.

How Credit Cards Impact Credit Scores

Your credit profile is compromised of all your credit accounts, and it reports how you manage those accounts. Your credit profile should have a good credit mix, a mixture of different credit account types. The main three credit accounts that make up a credit mix are

• Revolving Credit (Credit cards)
• Installment (Car loans)
• Mortgage

Credit Mix

Credit mix is only a part of your credit profile. How you pay and overall credit use, the debt ratio, are calculated in your credit health to give you a credit score. Credit cards are revolving credit.

You should also consider getting a small installment loan to help your credit mix when approaching a credit card company.

Debit to Income Ratio

Managing credit is a balancing act. You should have three times the income compared to the monthly debt you pay. For example, if you have a $1,000 credit limit, you should only charge $300 of the available limit to improve your credit score over time.

Your monthly income should be $3,000 for a $1,000 credit limit. It is good to keep your revolving credit below 30%; therefore, 30% of $3,000 a month gives you a $300 debt allowance.

This is why obtaining credit cards at eighteen can be problematic. If you do not have the income to ensure you do not need to use over 30% of available credit card credit, you risk ruining your credit profile.

Getting Credit Cards Under the Age of Eighteen

Although you have to be eighteen to enter into your credit card agreement, there are ways that you can get a credit card before turning eighteen. Guardians should consider how this can impact kids. Kids can cause issues with their credit and yours if you do not consider the appropriate age to get a credit card in their name.

Authorized Users

Authorized users are added to an account and given the authority to use it. Most commonly, parents use their credit card accounts to give their underage kids access to credit.

Authorized users may be liable for the credit card debt they use. So this is not an opportunity to be irresponsible with spending.

Prepaid debit cards

Similar to a secured card, a prepaid card requires pre-funding. Prepaid debit cards are not credit cards. They do not report to your credit report. But they are an excellent tool for building spending habits and budgeting available funds.

Prepaid cards can be obtained at any age, but they do nothing for your credit report. If you seek to establish good credit history, work with a consignor or someone who can add you as an authorized user to an existing credit card account.

The Best Credit Cards for Young Adults

Although there are restrictions that make it more challenging to get credit cards as a young adult, banks still offer programs to help those like you get started building credit. So if you have no credit history, you can use these options.

• Student Credit Card
• Secured Credit Card

Student Credit Cards

Student credit cards are special cards offered to college students. Credit card issuers offer these cards even if the student has no credit history. Some additional criteria must be met in some cases. Some may still require a parent or guardian to cosign for the account.

Secured Credit Cards

A secured credit card is a revolving account funded similarly to a prepaid card. Banks will require a deposit in exchange for a line of credit. The deposit is usually equal to the available credit line. The deposit is collateral in case the card has defaulted.

You still must be 18 years old to get a secured card on your own, but guardians can use secured credit cards to teach underage young adults how to begin managing credit.

Tip for Managing Credit Cards

You should not get a credit card if you do not have the income to pay the debt you accumulate. You should spend no more than 30% of your income on credit. Anything beyond this will put you at risk of defaulting on the credit card. Here are some additional pointers.

1. Do not apply for too much credit. If you take on too much credit, you won’t afford to outpace the amount of interest you’ll accrue over some time. Too many credit accounts in a short period will damage your credit report.
2. The small print matters. Every credit card offer comes with a cardholder’s agreement. This contract tells you how the bank will manage your credit account, the credit limit, fees, and interest rate. Some card issues charge an annual fee which can be advantageous if there are perks included with the annual fee.
3. Pay on time, every time. Ensure to pay your credit card bill every billing cycle. It is ideal to pay off your balance to avoid interest charges. If you pay the minimum payment only, you prolong how long it will take you to pay off the balance.
4. Be choosy. Choose the card that offers perks, such as cashback and points from purchases. Young adults move around a lot. A card that offers gas incentives is a great option. Some cards offer points and rewards for grocery stores, malls, and online shopping.

There are many more things to do to manage credit cards properly. Credit cards can do a lot if managed well to build your credit history and score.

Wrapping It Up

Credit card debt is one of the leading causes of financial ruin in the US. Many arrive here due to mismanaging credit. Credit cards are the easiest way to get access to credit. While credit is a great tool, managing it is a marathon.

Good credit history comes from steady good payment history over time. Young adults may not understand this, so you must understand how credit cards impact you by knowing the best age to get a credit card.

You can get a credit card at eighteen but must show an independent income, be the primary cardholder, and establish good financial habits.

If you are not eighteen yet, your guardian can add you as one of their authorized users on their credit card account. Contact a financial advisor or banker to discuss your best options if you need additional guidance.

The post What’s the Right Age to Get a Credit Card? appeared first on Jay Tripp Consulting.

The accounting equation is foundational; businesses record transactions in their books.  It has not been long since accounting has morphed into a systemic process executed mainly by software and automation tools. Businesses didn’t begin using computers until the mid to late 20th century. Managing accounting was a balancing act before technology came and made it efficient.

What Is the Accounting Equation?

The accounting equation is so fundamental to accounting principles that it is the first concept taught in an entry-level accounting class. Every accounting principle builds on the accounting equation formula.

Quick and Easy Definition

The accounting equation is the fundamental equation of accounting that states that assets equal liabilities plus equity: assets = liabilities + shareholder’s equity. It is the foundation of a company’s balance sheet, one of the critical financial statements a business generates.

The accounting equation highlights a company’s profitability. In short, investors can determine how well or how poorly a business is performing by glancing at its balance sheet.

Alternative Names + Arrangements

Other names refer to this equation. The accounting equation is also called the accounting formula, balance sheet, fundamental accounting equation, or basic accounting equation.

The accounting equation is expressed as assets = liabilities + shareholder’s equity.

Still, it can also be written out as:

• Assets = Liabilities + Owner’s Capital – Owner’s Drawings + Revenues – Expenses,
• Owner’s equity = Assets – Liabilities, or
• Net Worth = Assets – Liabilities

All four of these versions reveal the same information.

An In-Depth Look into the Accounting Equation:

The accounting equation is the introduction to the double-entry bookkeeping system. The double-entry accounting system began in the late 15th century. It is a method for recording business transactions that reveal how they affect the business’s bottom line.

The double-entry bookkeeping system records transactions twice. While it sounds like this recording leads to overstating records, it balances the business. It also shows how all components of the equation are relational. All businesses do not use the double-entry accounting equation.

Some used single-entry accounting, where transactions are recorded once on the business bookkeeping system. This is an ideal setup for a business with a small number of transactions. 

Double Entry vs. Single Entry

Single-entry accounting is a great way to start bookkeeping, especially for a business with a limited number of transactions and doesn’t need much reporting beyond a standard profit and loss statement. This is the benefit of single-entry accounting.

However, most businesses need more accounting than single-entry can provide. Double-entry accounting records transactions in a way that also demonstrates how profitable a company is becoming. Investors are interested in a business’s cash flow compared to its liability, which are the debts and bills the company pays.

Single-entry accounting only shows expenses and sales but doesn’t establish how those transactions work together to determine profitability. In addition, errors are more likely to occur and be missed with single-entry accounting. Double-entry accounting provides checks and balances that catch clerical errors and fraud.

The Balance Sheet

The balance sheet is a financial statement that reflects the accounting equation formula. The balance sheet shows Assets in one section and liabilities and equity in another. The balance sheet breaks down assets and liabilities into categories or “accounts” and “subaccounts.” The balances and transactions in these accounts tell a story about how the business is performing financially. 

Breaking Down the Components of the Accounting Equation

Since the balance sheet is a direct reflection of the account equation in practice, the accounting equation breaks down into unique components.

Assets

Assets determine a company’s ability to operate. A typical asset is the company’s bank account.

Liabilities

Liabilities represent bills and debts incurred by the business to operate. An example of a liability would be lease payments on equipment or office rent.

Equity

Equity shows the balance from all assets minus all liabilities. The difference between these two is the company’s value that is eligible for equitable distribution to shareholders.

The 4 Different Arrangements of the Accounting Equation

Every business needs accounting, no matter the size, but the size determines how the accounting equation is arranged. Large businesses use complex variations of the accounting equation.

Arrangement #1: The Basic/Fundamental Accounting Equation (Assets = Liabilities + Equity)

The basic accounting equation is the most commonly used arrangement. It is the most referenced in accounting courses and online by websites like NerdWallet.com and QuickBooks.com.

The fundamental accounting equation is used in startups and small to mid-sized companies with basic daily asset transactions like daily sales and periodic liabilities like rent and utility expenses.

Examples of the Fundamental Accounting Equation

1. ABC Hair Salon buys three hair dryer stations for $1,000 each. The accounting equation for this would look as follows:

$3000 Asset = $0 Liability + $3,000 Shareholders Equity.

1. ABC Hair Salon leases a suite in a high-rise business center. The lease payments are $4,000 per month for 12 months. The accounting equation for this would look as follows:

$48,000 Asset = $48,000 + $0 Shareholders equity.

1. ABC Hair Salon also sells hair care products. They have 1,000 units of shampoo in stock, each worth $10.00. The accounting equation for this would look as follows:

$10,000 Asset = $0 Liability + $10,000 Shareholders equity.

Arrangement # 2: Owner’s equity = Assets – Liabilities

If ABC Hair Salon wants to highlight owner’s equity, they may prefer to use an expansive version of the accounting equation. This version shows that a business has placed its creditors as a top priority against shareholders.

This expression reveals how the business’s obligations affect the owner’s equity.  This arrangement details how the increase or decrease in assets and liabilities affects shareholders’ equity.

Arrangement #3: Net Worth = Assets – Liabilities

This expansive version of the accounting equation is similar to arrangement number two because net worth is similar to owner’s equity. Net worth identifies a type of equity.

This arrangement shows the absolute bottom-line position for the shareholders. It differs from arrangement number two because equity can be categorized into subaccounts. Essentially, net worth is a by-product of all equity.

Importance of the Accounting Equation

The importance of the accounting equation cannot be understated. It is the key to accurate bookkeeping and a clear understanding of a business’s financial health. It also helps business owners prove to investors that their business is a wise investment.

Businesses depend on the accounting equation to create financial statements to make critical financial projections. It helps business owners answer important financial questions and can be used to attract investors.

The balance sheet is the focal financial statement the accounting equation produces. It directly reflects the equation and how assets, liabilities, and equity accounts are organized.

Streamline Your Financial Reports

The accounting equation is simple and complex, all at the same time. It’s simple for small businesses with a small number of transactions and complex for a large company with various assets and liabilities and several shareholders.

Companies can still manage their accounting manually, as before technological advances came along. However, there are ways to automate reporting and transaction recording using artificial intelligence tools and software.

Accounting systems can now record a transaction as soon as it happens in real-time and posts it to the accounting ledger. Automate controls in an accounting system to ensure the integrity of the accounting equation remains with Divvy’s spend management solutions. 

The post What Is the Accounting Equation? appeared first on Jay Tripp Consulting.

Payroll is about more than issuing a paycheck to an employee. Payroll involves deductions that laws require to be taken. Payroll is an expansive part of accounting with a variety of components. This guide will teach you how to set up payroll for small businesses and manage payroll for small businesses so that your company remains compliant.

What Factors Impact Payroll for Small Businesses? 

Taxes, employment laws, the employee and the scope of their job function, and record-keeping all impact payroll. 

Taxes are ordinary around the world. Governments collect taxes from citizens through their incomes. Employment income is the most common income in the world, so governments have set up many regulations to collect taxes timely and accurately. They cannot do this alone. They require employers to manage this process through a process called payroll deduction.

Employment laws determine how small business owners can manage their employees, including how they are to be paid and the minimum wage they are paid. The Australian government requires a minimum wage under the Fair Work Act 2009. This act is always active and reviewed annually. Therefore, it is also essential that a small business owner remains educated on changes to current laws. 

The type of employee impacts how you manage payroll. An employee can be a permanent employee or a temporary employee. Their salary range also affects reporting requirements. 

Payroll also generates a lot of paperwork. Employees receive pay stubs from you. Payroll produces much supporting documentation that you’ll need to complete tax filings. It’s a good rule to hold onto payroll records for seven years. Not only does this help you, but it also helps your employees. You, them, or both may need to reference hard files of payroll records in the future. 

Payroll Compliance in Australia 

Australia has several compliance factors for payroll. These cover minimum wage, paid holidays, leave policies, and record keeping. Many of these regulations are common in most countries, but Australia has set mandatory compliance factors. Small business owners must abide by these to be compliant. 

National Employment Standards 

The National Employment Standards (NES) are a set of entitlements employers must make available to employees. There are currently eleven. 

• Maximum Weekly Hours
• Flexible Working Arrangements
• Ability to convert to permanent employment status
• Parental
• Annual Leave
• Personal Care Leave/Family Leave
• Community Service Leave
• Long Service Leave
• Public Holidays
• Termination Notice/Severance Pay
• Fair Work Information/Casual Employment Information Statements

Small businesses must provide these rights or face penalties. There are eight that affect payroll.

Maximum Weekly Hours

Employers cannot unreasonably request that employees work more than thirty-eight hours weekly.

Leave

There are five leave standards under the NES. Employees’ rights based on their tenure are parental, annual, and long service leaves. Community service, personal car, and family leaves must be provided regardless of the length of employment tenure. 

Public Holidays

Public holidays are awarded to employees based on the Australian territory they work in. The territory affects how much the employee is compensated for them.

Termination Notice/Severance Pay

Employers must provide written notice to an employee about termination or layoff. There are exceptions to consider. In addition, the notice period is based on the business industry. 

Accurate Record Keeping

Small business owners should keep business records always. Payroll and employee records are at the top of the list. Australia mandates employee records to be kept for seven years.

Examples of records that must be kept are:

• Pay, Leave, and Hours Worked
• Expense Reimbursements
• Workers Compensation Information
• Superannuation Contribution Details

These items are related to the NES. Show that you are compliant by keeping records safe from destruction and theft. 

These are just some of the types of records that should be kept. Although not required by the Australian government, you should keep records from the hiring process, such as resumes and job applications, performance reviews, and employment contracts. 

Payroll records should also include your payroll schedule and pay period records. Pay slips should be kept for seven years, and they should be accurate and show deductions, gross pay, and the employee’s pay rate. If an electronic deposit is set up, keep records of bank account information, and any authorization forms the employee signed for direct deposit.  

These records provide an audit trail that will safeguard you from liability or issues related to unpaid or underpaid taxes. 

Employee information such as bank accounts, full names recorded, and service tenure helps auditors verify how much tax you should have paid. It can also help if the employee is under an audit for their tax obligations. 

Recording leave details can insulate you from any claims of employee mistreatment. If an employee files a complaint that they were not offered or received leave that the NES guarantees them, your records will prove if the claim is valid. 

Modern Awards

Modern awards are a part of the NES. They set standards for how employers are to pay employees and manage how and when they work. The list of modern award entitlements are:

• Pay
• Hours of Work
• Rosters
• Breaks
• Allowances
• Penalty Rates
• Overtime Pay

The Modern Awards fact sheet from the Australian government gives a high-level overview. The national workplace relations system covers employees covered under modern awards. Some criteria must be met. Every employee will only be covered for some awards. Some awards are unavailable for specific pay ranges and industries. 

Small business owners must comply with Australia’s standard for modern awards. A few stipulations and circumstances affect how a small business complies with modern awards, such as if the company is covered by a registered agreement, which is similar to an employment contract. In the absence of a registered agreement, modern awards rules are followed.  

Payroll Tax & Other Deductions

Payroll tax and other deductions are the primary reason for payroll management. Proper payroll management protects the business from a compliance failure. Taxes and deductions reporting is time sensitive. The Australian government requires them to be reported and paid in the correct period. It is imperative to manage payroll records to prevent penalties properly. 

This is where Single Touch Payroll (STP) plays a role. STP is a government-led payroll tool that makes it simpler for small business owners in Australia to manage their payroll deductions and meet compliance. STP is now mandatory for all businesses in Australia. 

STP has had two roll-out phases. With phase two, businesses can report required information about employees to multiple government agencies through one portal. This expansion of STP has made it easier for businesses to manage their reporting.

In addition to the STP registration, businesses in Australia must register for Pay as You Go (PAYG). PAYG is a system that facilitates tax payments to the ATO. Small businesses in Australia are required to register for PAYG even if they do not have employees to deduct and pay taxes for. 

The benefit of the PAYG for business is that it allows the end-of-year anticipated tax bill to be paid in installments throughout the year. The ATO will notify all companies that are required to issue tax payments periodically, but as a rule, businesses of a certain income threshold. 

PAYG also has a withholding system for employee or contractor wages. This system pays taxes to the ATO on behalf of the employee. Businesses can visit the ATO website to register for PAYG. 

Payroll Solutions for Small Business

Accounting payroll has many moving parts. Small businesses can manage payroll through manual recording methods with spreadsheets for calculations and filing cabinets for hard copies of records. This method may require much oversight since errors are more likely to occur. 

Spreadsheets are an age-old, tried-and-true method for managing payroll, but most small businesses use accounting software and apps to manage their payroll. 

The pro to payroll software is access to automation tools and integration with bank accounts. Some software also makes it easier to collect information from employees electronically. The downside is payroll software requires someone to learn the system and understand accounting principles well.

As businesses grow, they eventually turn accounting management over to a bookkeeper. Bookkeepers are specially trained to account for accounting transactions which include payroll. However, because a bookkeeper is trained to manage end-to-end accounting, they may not be up to date with the changes in Australian payroll and labor laws.

The best way a small business can ensure its payroll is managed correctly is to outsource it to a payroll provider. Payroll providers specialize in processing payroll and will remain current on changes to the payroll laws in Australia. 

Set Up Payroll for New Employees

A small business that manages its payroll in-house can follow this essential guide to set up its payroll. 

1. Collect and verify employee personal information: Full name, date of birth, and taxpayer number. This can be collected from the employee application, identification verification, and any applicable tax forms the employee completes. 
2. Set up qualifying entitlements and awards and ensure they meet the NES. Review the employment contract, job description, and working hours to determine what entitlements and awards the employee should receive. 
3. Determine the employee’s tax liability and super requirements. Use the super tool and tax form as a guide.
4. Set up STP. This can be done through the ATO website. 
5. Track hours and issue pay slips on time to the employee. Pay slips should be recorded and stored for future reference. 
6. Conduct monthly accounting processes to reconcile payroll with the business bank account. Use an accounting system, bookkeeper, or payroll administrator to help facilitate the reconciliation. 
7. Use PAYG to verify payroll records of employee withholdings reconciled with PAYG payments.
8. Any discrepancies should be updated in your payroll system. Keep track of records and changes of records for seven years.

Final Word

As a small business grows, the owner may need help to handle all payroll tasks. With so many requirements to be met with payroll requirements in Australia, a company can easily make mistakes and miss regulatory actions. 

Small businesses must create a straightforward process to set up and maintain payroll. It may be a better solution to hire a payroll service to do the heavy lifting to ensure you maintain compliance. A payroll service can work with employees directly and help the small business owner focus on other aspects of the business.

The post How to Set Up Payroll for a Small Business in Australia appeared first on Jay Tripp Consulting.

Cash collection is a vital part of managing the order-to-cash cycle. If your organization does not have a cash collection process, you will risk a backlog of unpaid invoices that may become uncollectible. Your business may then become insolvent if there is no steady cash flow.

To help you avoid further disruptions in your cash flow and business operations, we have put together this guide on how to set up an efficient cash collection process.

Understanding the Order-to-Cash Process

The order-to-cash process, also called the customer cycle or the AR cycle, is the journey a customer takes from the time they place an order with your company until they pay for their order. The order to cash process has five components: 

1. Sales and Credit Application
2. Order Placement and Fulfillment
3. Invoicing
4. Collections
5. Cash Applications

Before creating a collections process for billed invoices, ensure the first three parts of the order cycle are iron-clad. Ensure processes for sales applications are evaluated for proper creditworthiness, orders are entered correctly, and billing is produced with accurate charges. 

The Cash Collection Process

If billing is accurate, a collections process will prevent invoices from becoming past due and collect money on invoices that have become past due. A collections process will address how customers are notified about balances due and will manage payments as they come in. 

Analyze Accounts Receivable Aging

An accounts receivable aging is a report that shows the accounts that have unpaid balances. These balances will either be current or past due.

Past due invoices become increasingly difficult to collect. Therefore, reviewing an aging report frequently is ideal. Once the aging report is reviewed, identify accounts that are almost due and unpaid and accounts that are freshly past due. Assign these accounts to a collections schedule. 

You should also review payment trends and identify customers who are more likely to become past due. These customers require consistent communication that helps prevent additional payment issues from them. 

Near Past Due Customers

Accounts that have not become past due yet can be contacted by friendly email notices to remind your customer their invoice is coming due soon. Lead your AR team by determining when these contacts should take place.

An ideal frequency for a customer with a soon-to-be past due bill is a reminder five days before the bill is due, a second reminder two days before the bill is due, and on the due date. 

Newly Past Due Customers

If you have an account that has just become past due, and the customer does not respond to any contact notices before the due date, it is a good idea to take the contact efforts up a notch. Send another contact notice letting your customer know the invoice is now past due, if no response with payment, a collections call should be placed to get payment.

If a past due customer continues to ignore contact efforts, your collection effort must become formal. Prepare a notice to send to the customer. These are called dunning letters. A dunning letter also known as a demand letter makes a formal request to a customer of the debt they owe. The letter spells out the next steps in your collections process if the debt continues to go without pay. 

Past Due Customers Beyond 30 Days 

Thirty days is the typical allotment for customers to pay for invoices. Accounts that have aged past 30 days require more collection tactics beyond letters and phone calls. You should work with other parts of the organization to assist with getting payment. The salesperson’s relationship with a customer is effective in getting payment from a non-paying customer. 

If this does not help payment, you can revert to other measures like placing the customer’s account on a credit hold or suspending service if applicable. 

Implementing Collection Software

Consistent communication is a key part of a cash collection process. Customers can miss dunning letters leading to inconsistent messages about your expectations for them to pay on time.

Accounts receivable workflow tools make it easier to automate collection notices for your customers. This leaves your collections team with more time to address errors with billing and other hands-on items preventing customers from paying. 

In addition, you can schedule systemic collection notices, which helps you stay in contact with doubtful accounts and other customers who habitually pay late.

Final Thoughts

Because collection software is cloud-based and secure, it makes reporting on your AR aging easy. It also allows collection personnel to easily manage accounts, see balances, and document and pre-schedule contact efforts with customers.

As long as your team is dedicated and you have an efficient AR management program, the cash collection process is bound to work successfully within your organization.

The post How To Set Up an Efficient Cash Collection Process? appeared first on Jay Tripp Consulting.

Use automated workflows where possible

Accounting processes require many controls. For example, specially authorized people can approve transactions and sign off on payments. These types of controls ensure a business can pass audits and prevents fraud. 

Although accounting controls are necessary, they cause a burden in accounting environments. Automate approvals with an automation tool to lighten the load. For example, accounts payable check runs can receive quicker approvals at the click of a button with accounts payable automation.

Streamline billing

Billing is one of the more cumbersome parts of the accounting function that causes a heavy workload for accounting workers. Billing has steps that can lead to manual processes. Auditing is necessary for accuracy to be consistent on invoices. Manual auditing creates a burden for accounting employees because of the amount of data that is reviewed. 

The best way to lessen this burden is to automate portions of the billing cycle. For example, invoices are generated and delivered on time by automation. It can also ensure some invoices are not overlooked.

Collections automation

Chasing down past due invoices takes time and precious resources from an accounting team. Past due invoices have a negative impact on a business’s cash flow. They can easily be overlooked if other accounting duties are in the way, but it’s great if you can automate your collections processes. 

Streamline payments

Send past due notices on a schedule and give customers a payment gateway that allows them to easily submit payments online without the need to interact with accounting personnel. Payment gateways offer secure payment methods to process credit cards, ACH, and electronic check payments.

Payment automation reduces the number of incoming calls coming into an office. High call volume is a driver to a burdened accounting team. Payment gateways also help businesses protect sensitive customer information efficiently. Manual record keeping is time-consuming and adds an extra burden to an accounting team.

Better reporting

Accounting systems that do not provide access to easy reporting create burdens for accounting teams. Some accounting systems provide raw data that is hard to manipulate into meaningful analysis, which helps accounts receivables managers set up an impactful collections plan. 

Automation systems have reporting features that run reports on a predefined schedule. Accounting employees eliminate wasted time manipulating raw data in excel reports. Often, these employees must have advanced excel knowledge for this. Businesses can define the parameters for accounting reports to deliver the exact analysis needed. 

Final thoughts

Accounting teams manage a large volume of data daily. As sales increase, this data also increases, creating pressure on accounting employees, which leads to errors. Accounting automation tools can lighten the load on accounting teams. 

The post 5 Tips for Lightening the Workload of an Accounting Department appeared first on Jay Tripp Consulting.

Many businesses rely on workflow tools to address any deficiencies in the accounts receivable process. Along with effective software for managing accounts receivable, companies must have a robust process for managing accounts receivable that comprehensively covers all aspects of the AR cycle.

Common Accounts Receivable Management Issues

The AR process is a component of the order-to-cash process (OTC). AR management includes many moving parts that all work together to achieve good cash flow. While this list is not all-encompassing, these critical issues affect how well a business manages its AR.

1. Inefficient Workflows

After a sale, an order team member finalizes and enters it into an accounting system. Then a biller creates an invoice. An invoice is necessary to ensure a customer will pay. Invoicing typically occurs after the delivery of an order, and any disruptions in the flow of this part of the OTC process affect the accuracy of the invoice.

Some customers require specific documentation alongside invoices, such as evidence of delivery or a purchase order number. Failure to provide such crucial information may lead to delayed orders and late payments. AR automation tools are especially useful in high-volume settings. AR software can automate the order-to-cash process to minimize errors and improve cash flow.

The general order-to-cash process includes these areas:

• Order Management
• Billing
• Cash Applications
• Collections
• Customer Service

Businesses should consider where to include customer success teams in their hierarchy. All employees in every department of an AR team should be prepared to facilitate customer service requests. In addition, AR managers must work with other departments to ensure there are no breaks in the OTC that could cause AR issues later in the cycle. All workflows should follow Generally Accepted Accounting Principles (GAAP).

2. Weak Credit and Collection Policies

Poor collections strategy can cause cash flow shortages by leaving unpaid invoices unattended. The longer an invoice remains unpaid, the greater the risk of it remaining unpaid. AR Managers monitor collections by establishing a collections process. This involves credit evaluation, aging management, and cash applications.

The accounts receivables process covers these areas while incorporating appropriate accounting controls to ensure effectiveness. Accounting controls are systemic checks and balances to ensure a company’s accounting processes prevent fraud. The process should specify who performs each action and how it is executed and audited to ensure accuracy. Collections processes should be reviewed periodically for improved efficiency and outcomes.

If a business manages collections without software tools, they risk overlooking key accounts, leaving invoices unpaid, and potentially missing opportunities to identify misapplied cash receipts. Implementing workflow automation streamlines the collections process and prioritizes accounts that require immediate attention. Accounts receivable software provides dashboards with a high-level overview of your AR.

AR processes must include tasks to perform credit analysis on new and existing customers to verify their ability to pay. Credit limits and holds should also be implemented on customer accounts to control bad debt. Customers who fail to pay on time may lose their buying privileges. These controls can be automated using AR software.

Manual collections management causes missed opportunities to inform customers of past-due billing. This approach typically involves collectors making active calls, which may be time-consuming and less efficient. However, by adopting a workflow solution, email notifications can be automated and sent to customers with past-due balances. This strengthens results from collections activity and allows collectors to focus on aged accounts. 

3. Disorganized Accounts Receivable Data

An accounting system can generate reporting known as the aging of accounts, which shows the outstanding balances owed by customers and their respective ages. Failure to monitor this data results in a rise in bad debt exposure. Manage accounts receivable data using basic computer tools such as spreadsheets or sophisticated AR software to identify potential collection risks. AR software allows AR managers to customize reports to show past due customers by business or product line, sales volume, or customer profile type, such as premier accounts.

The more organized accounting data is, the better it is to analyze. Accounts receivable data must also be accurate. Inaccurate data leads to customer service issues. For example, if your AR data has incorrect balances, your collections team could contact a customer and demand payment for an invoice that is not past due. Automation tools prevent these problems with automated reporting.

Managing bad debt, also known as “allowance for doubtful accounts” or “write-offs,” is one of the more important reasons to organize accounts receivable data. Many companies create bad-debt reserves, funded by taking cash from net income to offset potential financial risk. Companies must expense the invoice as a write-off when a customer fails to pay an invoice. Write-offs affect a company’s bottom line. Organizing accounts receivable data for proper analysis mitigates bad debt exposure. 

4. Poor Cash Applications

The cash applications stage of the accounts receivable cycle directly impacts cash flow. Improper management can hinder the effectiveness of the AR process and increase a business’ average days-to-pay record. Cash receipts decrease the accounts receivable balance and increase the cash account. AR managers can control outstanding AR by tightening cash application processes. 

Improve cash applications in these key ways:

• Bank Deposit Reconciliation – AR departments improve cash flow by quickly monitoring incoming receipts and recording them to the accounting ledger.
• Consistent Resolution of Unapplied Cash Reports – Unapplied cash reports show AR Managers the cash receipts recorded to the ledger but not applied to an invoice.
• Increasing ACH and Credit Card Payment Methods – This deters customers from sending paper checks through the mail, which can prolong cash receiving and increase invoice aging.
• Setting Up Banking Lockbox Services – Banking lockbox services allows your cash team to focus on pertinent issues affecting cash applications. Lockbox services include receiving, scanning, and auto-applying payments in some cases.

Large businesses become overwhelmed with high volumes of incoming cash receipts. These volumes increase the likelihood of cash receipts being misapplied to the wrong customer. Overcome this challenge with accounting automation which can automate many components of cash applications. 

5. Inadequate Staffing

The effectiveness of an accounts receivable management process relies on qualified personnel. Effective accounting specialists for billing and collection roles possess customer service, negotiation, resourcefulness, and account management skills.

On the other hand, basic accounting knowledge, attention to detail, and follow-through skills are essential for cash application roles. Moreover, AR managers require data analysis, auditing, analytical, and technical skills. Every part of the OTC should be adequately staffed. When there is insufficient staffing, the AR workload will bottleneck, leading to poor customer service and frustrated employees. 

Systemic automation relieves lean accounting departments by automating simple tasks such as mass emailing collection notices, billing recurring charges, and enforcing accounting controls to prevent an accounting worker from processing transactions against GAAP standards.

Wrap up

A successful AR team has members with specialized skills. While skills are crucial, automation tools for AR can help maximize their effectiveness. Accounts receivable software increases productivity, allowing the AR team to focus on reducing AR balances, preventing a backlog of customer orders, and ensuring timely payment of invoices.

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