Every business process brings with it specific challenges, and accounts receivable management is no different. In a study, industry analysts Paystream Advisors asked financial professionals to rank their most important challenges when it comes to their receivables operations, the results of this survey are below, along with some very good news.
According to the survey, the top three most important topics for companies is lowering their days sales outstanding, increasing A/R staff productivity, and reducing portfolio risk. See the results from the survey below:
- 87% reported that reducing DSO was their most important challenge.
- 86% said doing more with their existing staff was a top priority and challenge.
- 84% noted that reducing portfolio risk was a critical challenge.
- 74% are focused on reducing bad debt write offs.
- 65% reported their most important challenge to be doing more with less staff.
The good news is that each and every one of these challenges can be overcome when the right steps are taken and the right tools are used to improve the accounts receivable management process.
REDUCE DAYS SALES OUTSTANDING
While reducing DSO may be the most important challenge listed above, there are quite a few things that organizations can do to address it; and it’s much easier than you might think. Here are a few of the most effective ways that you can begin using almost immediately:
- Invoicing customers ASAP. The faster you get the invoice to the customer, the faster they can pay you, ask questions, and give you an opportuinity to solve any issues that may result in late payement.
- You may want to consider early payment incentives such as a small discount to those customers who pay early.
- Enable customers to pay their invoices online.
- Make sure terms and due dates are clearly written on invoices and any communication sent to the customer.
DO MORE WITH EXISTING STAFF
When it comes to productivity in your accounting department, you must take a very close look at the systems you are using to manage the process. A majority of companies are using their ERP or accounting system for accounts receivable management; although these systems to have some accounts receivable tools, they still require a huge amount of manual labor and time to manage the invoice collection process. With manual processes, collectors are spending a massive amount of time looking for information to prepare for a call with a customer, updating spreadsheets, fixing data errors, prioritizing activities based on account aging, and other non-value added activities when they should be focused on communicating with customers, settling disputes, and other more critical activities.
When you use the right tools, you can automate accounts receivable management processes and centralize accounts receivable data to give collectors the time they need to focus on the activities that help the company get paid faster while also improving performance and driving down transaction costs. Without automation, there is simply no way companies can recognize such results, do more with current staff, or reduce the number of people they currently have focused on accounts receivable management. Learn more about automating accounts receivable management here.
REDUCE PORTFOLIO RISKS
There is a difference between good credit risk and bad defining and recognizing customers for what they are is critical to reducing accounts receivable portfolio risks- but it’s not easy. Here are a few things to consider.
- Are you asking every new customer to fill out a credit application?
- Are you asking repeat customers who request a credit increase to fill out a credit application? Customer credit worthiness changes over time, so it is important to make sure they are in good financial health before giving them additional credit.
- Are you following up with customer credit references? Many companies ask for references but fail to call them, this is a serious mistake!
REDUCE BAD DEBT WRITE-OFFS
When you pull together the above factors, reducing bad debt write-offs is inevitable. By better monitoring credit risk and increasing the productivity of your team, you will have fewer doubtful accounts to begin with and even fewer invoices that reach the point of no return. In fact, Paystream Advisors reports that companies who automate accounts receivable management are realizing:
- 10 to 20 percent reductions in DSO
- 25 percent reductions in past due receivables
- 15 to 25 percent reductions in bad debt reserves
- Return On Investment (ROI) in as little as 2 months.