Is your AR aging creeping beyond resolution? Are you even able to review and report on your aging accounts receivable? The role of accounts receivables (AR) teams is increasingly important as the backbone of your organization’s financial health. However, the last two years have proven that the standard manual AR processes are not sustainable for the long-term success of the organization. Still, there are some fundamental and easily-deployed tactics that are sometimes forgotten in the rigmarole of daily activities – tactics and concepts that every credit department can use to reduce outstanding receivables.
Earlier this year, we covered three ways you can reduce your outstanding AR. Here are three more ways you can reduce your outstanding accounts receivable.
Clearly Define Rolls
One of the most important things you can do right now is to clearly define credit and collection responsibilities and roles. This applies to companies with dozens of credit and collections professionals to small companies with only a few finance employees. Why is it important to define roles and responsibilities? Below are just a few reasons to consider:
- Who has the authority to place customers on hold?
- Who can increase credit limits or change credit terms?
- Who is responsible for placing collection calls?
- What do you do if someone resigns or goes on vacation?
If multiple people are involved in these processes – are their processes the same and how to do they communicate with each other and different departments in your organization?
Consideration should be given to providing primary and secondary responsibilities to employees. This provides back-up support in the event that the primary person is not available. It also cross-trains employees while providing a clear decision-maker for key credit and collection responsibilities.
Manage Your Team Resources
Credit managers need to effectively manage their teams’ resources. The first step is to identify which resources are available and how much time is spent on credit and collections activities. This is essential, as some employees wear multiple hats, spending just a small portion of their day working on credit and collections. It is common to have an accounts payable manager working on collections. While, it’s not out of place to leverage office managers for collections calls or to escalate specific tasks such as resolving disputes and extending credit terms to the controller or chief financial officer (CFO).
With a variety of tasks being performed across the accounting team, tracking, and planning essential to ensure activities are being completed. To effectively manage this workflow, you can assign specific accounts to resources who are responsible for managing receivables and collections activities from these respective accounts. This is very effective – especially if you assign larger accounts to individuals who can focus their efforts on most of your receivables.
Based on this workflow, you should also be able to report on key performance indicators and activities performed by team members. A credit manager may hold collection representatives accountable for placing a specific number of phone calls each day or week, or maintain a defined level of outstanding receivables which aligns to key performance indicators.
Leverage AR Automation
Many of the time-consuming processes, AR teams face today can be automated or simplified to the point where they are much easier to manage. This includes invoice and statement delivery, due date reminders, and past due collections communications.
The first step towards automation begins with invoices and statements. One of the most common reasons for non-payment is there was never an invoice received. The AR team has to reprint and send the invoice over email, fax or post. This challenge could be avoided altogether if the customer had virtual access to invoices and statements.
Slowing down the process further is that some companies don’t allow collections teams the access needed to print or reprint invoices. This delays the process even further.
Much of the communication that is provided to late accounts is standard and could be automated based on a customer classification, amount owed, and days outstanding. Collection representatives shouldn’t have to write the same email or letter over and over again to dozens or hundreds of customers when they could quickly mass-mail customers who should receive the same message.
Enter Award-Winning Lockstep
Lockstep’s award-winning accounts receivables (AR) automation solution, Lockstep® Receivables, helps clients increase cash flow, decrease DSO, and scale their accounting departments through digital transformation.
