The key challenges impacting AR teams today due to time-consuming, manual processes.
The last 18 months have been challenging for finance departments. Through lockdowns, remote work, staff turnover, increasing late payments and rising Days Sales Outstanding (DSO), finance teams have seen their share of challenges. Department focus has probably been on trying to keep up, so cash keeps flowing. Now that a semblance of normalcy has returned, it’s time to reassess what needs to be done to overcome accounts receivable hurdles and get ahead of the curve on credit and collections.
The traditional finance process involves a large amount of tracking and follow-up. Approvals for invoices, disputes, and early payment discount offers to require tracking and follow-up to ensure timely payment and collection. Today’s accounting departments are still largely a manual process where staff is responsible for sending and receiving documents and keying in information to the financial system. Here are some of today’s most common accounts receivable (AR) problems:
- Late Payments
Many customers are paying late to conserve cash to ramp up during the economic recovery. Customers are “stretching” suppliers, letting their Days Payable Outstanding (DPO) increase with a corresponding rise in your DSO.
- Time Required to Manage Collections Process
Successful collections are driven by customer contact. There never seems to be enough time to manage collections processes and contact customers effectively. Between staff turnover due to the “Great Resignation,” absenteeism, and manual processes that consume time needed for customer contact.
- Resolving Payment Disputes
The first time you learn of payment disputes is usually after customers have taken an unauthorized deduction. Staff constraints and manual systems have made it difficult to resolve disputes in a timely manner.
- Credit Approvals and Credit Lines
The pandemic impacted the finances of many companies, making it difficult to decide on credit approvals for new customers, and extend credit lines for existing customers. Slow recovery and unclear data have made it difficult to manage credit approvals and lines, particularly when processes are manual.
- Maintaining Customer Experience with Late Payers
Finding a balance between collections and customer experience with late payers is always a challenge. Retaining customers is essential, but you need cash flow to survive. How do you balance the need to provide an exceptional customer experience with sufficient cash flow to fulfill orders and pay staff?
These problems can be overcome. They can be solved with credit and collection policies and accounts receivable automation.
Credit and Collection Policies
A surprising number of companies don’t have credit and collection policies. If you don’t have policies, develop them now. Policies provide a framework for your AR team. They know what they can and can’t do. Your team can react faster when they don’t have to run every situation up the chain of command.
If you have policies, review them regularly. The pandemic changed the way business is conducted across many industries. Some industries flourished, while others were devastated. Review and adjust your policies so they are compatible with current business conditions. Adopt your lessons learned over these last two years to build in contingencies. AR team performance improves when policies are in sync with the business environment.
Credit and collection policies can help to streamline AR processes, solve problems, and improve AR performance metrics. In addition to updated and regularly reviewed policies, technology can solve for a number of key challenges impacting finance teams.
Accounts Receivable Automation
AR automation can help to reduce problems, while improving efficiency and cash flow throughout your Order to Cash (O2C) cycle. From credit and invoicing to collections, analysis and reporting, automation is the gas that powers the finance engine.
Through automation, collections can be streamlined with automated email reminders based on customer payment habits. Electronic invoicing and electronic payment options reduce the O2C cycle, errors and late payments helping to eliminate the need for time consuming follow-up calls. At the same time, customer online portals make it easy for customers to pay electronically, obtain document copies, and report disputes for faster resolution.
In the back-end, automation allows for more enhanced credit review frequency. This enhanced speed can be leveraged to expedite credit approvals and set credit limits. Customer credit ratings and timeliness of payments can be monitored closely. Your team will know if credit limits need to be revised, and collection follow-up increased. Analysis and reporting with drill-down enabled dashboards provide the tools you need to manage effectively. They give stakeholders the visibility they need to stay informed of AR department performance, accounts receivable quality and cash flow.
Credit and collection policies provide a framework to guide your team. AR automation gives them the tools they need to achieve department goals.
With a connected accounting solution, like award-winning Lockstep, for your finance team to coordinate work with customers and vendors, you can go digital and enjoy the benefits of office automation.