A well-structured accounts receivable (AR) department turns unpaid invoices into cash flow you can count on. It also represents the company at a key customer touchpoint: when the customer gets the bill.
As a result, the AR department often has to balance these objectives, making sure your company gets paid on time while maintaining positive customer relationships that drive ongoing, reliable revenue and growth.
This article walks through the most important aspects of structuring an AR department, so it can accomplish these objectives efficiently and effectively.
What is the accounts receivable department?
The accounts receivable department manages your company's billing and collection processes, ensuring that customers pay for the products or services they receive. This finance function is part of the accounting team and typically reports to the controller or chief financial officer (CFO), serving as a key driver of company cash flow and working capital.
More than just a back-office billing operation, the AR department helps maintain your company's financial health while supporting customer satisfaction and retention by handling receivable accounts with efficiency and professionalism. Together, accounts payable and accounts receivable form the backbone of a company's healthy cash flow.
Importance of the accounts receivable department
A high-performing AR department directly impacts company success by converting sales into cash quickly and consistently. This reliable cash conversion supports everything from daily financial operations to strategic investments, providing the funds you need for sustainable growth.
Beyond pure financial impact, the way the AR department handles invoicing and collections can affect customer perception, influencing their loyalty. Professional, organized AR operations build customer confidence while resolving payment issues diplomatically. This balanced approach to effective accounts receivable management helps preserve the valuable customer relationships that drive long-term revenue.
Moreover, the data and insights generated by the AR department help inform business decisions. Analyzing payment patterns and customer behavior can reveal opportunities for improvement, highlight potential risks, and guide strategic planning for growth.
What does the AR department do?
The accounts receivable department handles several operational areas, each contributing to efficient revenue collection and strong customer relationships for both new and existing customers. You'll need to consider each one in structuring your AR department.
Managing invoices
The AR department needs to create and distribute customer invoices that are accurate, timely, and professional. This includes customizing invoice formats to represent your brand while meeting customer requirements, generating invoices, implementing quality control checks, and ensuring prompt delivery. Clear, accurate, detailed invoices set the foundation for timely payment.
Processing and recording payments
When incoming payments arrive, the AR team ensures they're properly recorded and reconciled across all payment methods, from checks to ACH transfers to credit cards. This includes collecting payments, matching those payments to invoices, resolving any discrepancies, and maintaining accurate records. It also involves improving the customer payment experience, such as offering online payment methods, which can further streamline customer payments.
Managing overdue payments and collections
The department should track payments and aging receivables, send payment reminders (ideally before the due date), and follow up on money owed from overdue accounts according to established protocols. This delicate work requires balancing persistence with professionalism, using appropriate escalation paths for outstanding invoices while maintaining positive customer relationships that support future sales.
Maintaining customer records and credit policies
Effective AR operations rely on accurate customer information and consistent credit policies for determining credit eligibility. The department maintains customer accounts with contact details, payment preferences, and credit terms, keeping them all up to date, while tracking customer payment behavior to adjust trade credit limits up or down as needed.
Generating financial reports and analytics
Regular reporting provides visibility into receivables, aging trends, and collection effectiveness. The AR team generates standard financial statements like net credit sales, aging reports for outstanding balances, and potential bad debts while providing deeper analytics that guide process improvement and strategic planning.
Collaborating with other departments
The AR department works closely with sales teams, customer service, and other finance teams to align on customer issues and payment expectations. This collaboration ensures consistent customer treatment while helping resolve disputes quickly and maintaining good customer relationships.
How to structure (or restructure) your accounts receivable department
The best way to create an effective AR department structure is to start with your organization's specific needs. While the exact configuration will vary based on your business size, industry, and growth trajectory, the following guidelines can help you build a department that supports your objectives.
Define clear roles and responsibilities
Start by establishing well-defined positions within the AR team, each with distinct responsibilities that prevent functional gaps or overlap. In a larger team, this might include specialists who focus on cash application, dedicated collectors for follow-up, and analysts who monitor portfolio performance for insights.
Establish standardized processes and policies
Document clear procedures for every accounts receivable process, from assessing customers for trade credit to creating invoices to applying payments to collecting on overdue accounts. Standardized processes help ensure consistency as your business grows, while making it easier to train new team members and maintain service quality.
Segment customers strategically
Group customers by relevant characteristics like tenure, strategic importance, and payment history to tailor your collection approach. This segmentation helps you customize everything from credit terms and limits to communication strategies for maximum impact.
Develop customer communication strategies
Create effective templates and scripts for common scenarios throughout the payment collection process, along with clear guidelines for timing and tone. The right communication at the right time can encourage prompt payment while maintaining professional relationships that support future business.
Implement robust credit management
Create clear frameworks for evaluating credit risk, setting appropriate limits, and monitoring ongoing payment behavior. These controls help balance sales growth with financial risk while maintaining consistent treatment across customer segments.
Create escalation paths for collection issues
Develop clear protocols for handling overdue accounts, including when to escalate issues and which approaches to use at each stage. Well-defined escalation paths can help your team handle collection challenges appropriately while preserving your most important customer relationships.
Establish best practices for cash application
Implement efficient processes for matching payments to invoices and resolving discrepancies quickly. Good cash application practices can reduce unapplied payments, speed up reconciliation, and improve visibility into your receivables.
Develop performance metrics and reporting
Identify key performance indicators that track AR effectiveness, from days sales outstanding (DSO) to collection effectiveness index (CEI). Generating specialized financial statements for regular AR reporting can help spot trends early, revealing your progress as well as opportunities for improvement.
Build expertise through training and development
Invest in developing technical skills as well as soft skills across your AR team. Training programs should cover AR best practices, technology tools, and customer communication techniques that improve collection effectiveness.
Create strong interdepartmental connections
Build effective communication channels between AR and other departments, particularly sales and customer service. Strong connections help align expectations around payment terms while ensuring consistent handling of customer issues.
Implement effective AR technology
Choose an AR solution that can automate routine tasks while providing clear visibility into receivables performance. The right technology can dramatically improve efficiency while reducing errors and accelerating cash flow.
How AR automation can improve your AR department efficiency
Modern AR automation transforms manual processes into streamlined, strategic operations. Instead of spending hours on data entry and paper pushing, your team can focus on building customer relationships and resolving the many complex AR issues that need human attention.
Automating AR with BILL Accounts Receivable can help your team:
- Deliver invoices instantly through customer-preferred channels
- Accept more payment methods while maintaining security
- Send automated reminders that improve collection rates
- Track aging and performance in real time
- Reduce manual tasks by up to 50% (or more)
- Accelerate cash flow with 2X faster payments
The result? Your accounts receivable team can work more strategically while providing better service to customers. Instead of chasing basic payments, they can focus on maintaining the relationships that drive sustainable growth.
Accounts receivable department FAQ
Here are quick answers to some commonly asked questions about accounts receivable department structure.
What is the primary goal of an accounts receivable department?
The AR department's primary goal is to convert sales into cash efficiently while maintaining positive customer relationships. Rather than treating these as competing objectives, successful AR teams recognize that professional payment handling actually strengthens customer relationships, supporting both immediate cash flow and long-term growth.
What are the roles in an AR department?
AR departments typically include several key positions that work together to manage the complete receivables lifecycle. The specific configuration depends on your organization's size and needs, but common roles include AR clerks, specialists, coordinators, analysts, collectors, and managers.
Different types of accounts receivable job roles
- AR clerks handle basic data entry and payment processing
- AR specialists focus on cash application and reconciliation
- AR coordinators manage customer communication and documentation
- AR analysts track performance metrics and identify trends
- AR collectors follow up on overdue payments
- AR managers oversee department strategy and team development
Each role requires specific skills and qualifications, from basic accounting knowledge for clerks to advanced analysis and leadership capabilities for managers. Clear career paths help team members develop expertise while ensuring your department maintains the skills needed for continued effectiveness.
