Service Level Agreement Accounts Receivable

A service level agreement (SLA) is a contractual agreement between a service provider and a customer defining the level of service expected in terms of quality and performance. In the accounting world, SLAs are used to establish expectations for accounts receivable management.

An accounts receivable SLA outlines the terms and conditions for payment, including due dates, payment methods, and penalties for late payments. This agreement ensures that both parties are on the same page and provides a framework for resolving any disputes that may arise.

There are several essential elements that should be included in an accounts receivable SLA:

1. Payment terms: This section outlines the payment terms, including the payment period, due date, and payment methods.

2. Payment procedures: The payment procedures section details how payments will be processed, including invoicing, collection, and recording.

3. Dispute resolution: This section outlines the process for resolving any disputes that may arise concerning payments.

4. Reporting: The reporting section defines how the provider will submit reports to the customer, including account statements, aging reports, and other financial information.

5. Penalties: The penalties section outlines the consequences for non-payment, including late fees and interest charges.

6. Service level objectives: The service level objectives section details the performance levels that the provider is expected to achieve, including the percentage of accounts receivable collected, the average collection time, and other metrics.

An accounts receivable SLA is essential for ensuring that all parties understand the terms of payment and are committed to meeting their obligations. It is also a valuable tool for managing cash flow and reducing the risk of bad debts. By establishing clear guidelines for payment and performance, an accounts receivable SLA can help businesses improve their financial stability and reduce the risk of overdue payments.