As publishers of accounts receivable management software, we have worked with companies of all shapes and sizes who struggled with A/R management. While every company is different, we have noticed that many of these companies struggle with some combination of the same issues. Below is a list of the top 5 problems we see our customers struggle with before seeking a solution and a few suggestions on how to avoid them in your business.
Most customers want to pay you on time, but they won’t if there are problems with the invoice. Find out why customers aren’t paying you on time. Are your invoices missing the customer purchase order? Are they being sent to the wrong person or the wrong address? Is the billable rate or freight rate wrong? Are they tax exempt, and you continue to charge tax? Review all late invoices, talk to your customers and your accounts receivable staff, and identify what’s wrong. Later we will discuss how to fix these issues, but it will be very apparent to you how to resolve many of the issues with small changes in your billing processes.
INVOICE DELIVERY PROBLEMS
Are your customers receiving the invoices? Are they receiving them early enough to pay you on time? Many companies only process invoices once or twice a month. If the invoice is created on the first of the month with Net 30 terms, and you don’t send the invoice to the customer until the 15th of the month, you’re only giving the customer 15 days notice to make a payment on time. Consider processing invoices more frequently and sending invoices to customers electronically so they have more time to review and to pay the invoices before the due date.
Most businesses do not have a formalized credit and collections process. As such, they are working with outdated Excel spreadsheets, old Aging Reports, or they enter information manually into a CRM system to keep track of what they’ve done or what they need to do. Inaccurate and outdated information is not effective to helping you get paid on time. Understand what information is important to your credit and collections staff. Later we will discuss how to utilize a credit and collections management software application and help you get access to this information in a centralized system designed to make you much more effective in your activities and customer communications.
Do you have enough people working on accounts receivable management? Do they have the proper training and access to information to be effective? Do they have systems to help them streamline their processes? Accounts receivable is likely your largest or second largest asset. Make sure that your team has everything they need to be as effective and as efficient as possible, so you can get paid on-time, every time. Identify your team members, roles and responsibilities, and solicit their feedback as they will be able to tell you what they need, what’s working well, and areas where they feel your business could dramatically improve.
In most cases, businesses fail to get paid because the invoice has problems, is sent too late, or the collector is working with bad data. But there are, occasionally, other reasons why business customers don’t pay on time. The customer may be experiencing cash flow problems and is otherwise unable to pay, or perhaps they are in a very small minority of business customers that simply refuse to pay their bills on time and are practicing cash flow management.
We suggest that you try to identify the top three issues your accounts receivable management team is experiencing today and return to this list periodically to make sure you’re staying on top of all 5. You can use this list or create your own list, but either way you need to understand what’s working and what’s not working so you can fix it and improve your accounts receivable management processes.