You’ve attracted the customer, made the pitch, sold your product/service, sent the invoice and delivered the product or service…but the work is not done yet! You still need to collect the money owed to you. The reality is that collecting accounts receivable is hard and it’s a serious problem for a lot of companies; and it’s probably the company’s fault. This article uncovers some shocking facts about the accounts receivable crisis and what you may or may not be doing to make collecting accounts receivable even harder for yourself.
WHAT YOU NEED TO KNOW ABOUT COLLECTING ACCOUNTS RECEIVABLE
Without the facts you do not have the ability to change your process, so before we get into why you may be your own worst enemy when it comes to collecting accounts receivable, let’s take a look at how prevalent the trouble with collecting accounts receivable truly is. According to recent research, it’s pretty widespread:
- 39% of invoices are paid late in the United States (Atradius)
- 48% of customers delay payment (Atradius)
- Most offer 28 day terms but average DSO is 67! (Atradius)
- Approx. 17% of customers don’t adhere to credit terms (CRF)
- 26% of invoices over three months old are uncollectable, 70% are uncollectable at six months and 90% are uncollectable at 12 months (US Census Bureau)
Why is collecting accounts receivable such a problem? In some cases it’s because businesses are offering credit to risky customers, they have inappropriate terms set, or they are extending credit lines too far. Other than credit management, more prominent reason companies have such a hard time getting paid has nothing to do with credit risk and management but everything to do with their invoice collection processes and the tools they use to manage them.
Here’s the hard truth of the matter, even the best customers with the lowest risk of delinquency can miss a payment, and it’s usually due to something preventable within the accounts receivable department.
Maybe the invoice was sent too late for them to process it on time, the purchase order was missing, the contact information was wrong, the price was incorrect, you never reminded them of payment because you forgot or didn’t have time, etc. These are all issues caused by the use of aging reports, spreadsheets, CRM systems, and other manual accounts receivable processes. They create more work and don’t provide collectors with the tools they need to complete it efficiently. Those are two problems that can cost you thousands of dollars every year in labor costs and bad debt write-offs.
When collectors have to dig through old emails to look for information, update spreadsheets, fix data entry errors, figure out who to call first about an invoice, decipher notes scribbled on post-it notes, and spend their time and effort on other non-value added activities, they’re not able to focus on contacting customers about upcoming due dates, past due invoices, settling disputes, etc.
Accounts receivable management software such as Lockstep Collect, does what ERP, CRM, spreadsheets, and other manual processes cannot, it gives collectors all of the tools, automation, and insight required to collect A/R faster and more effectively. For example, the system will automate reminder notices to customers when they have invoices that have an open balance that will be due in the next few days. Sometimes sending a reminder is effective in prompting the customer to notify you of issues on the invoice or reasons why the payment will be late which gives you an opportunity to address issues or disputes proactively.
THE BOTTOM LINE
When it all comes down to it, the advantages of extending credit to your customers far outweigh the disadvantages, the ability to recognize them lies in your credit risk management and invoice collection strategies and the tools you use to put them into motion. Without a strategy and plan to identify who to extend credit terms to, how much credit to offer, and collecting invoices on time, you’re good intentions can quickly result in customer cash flow problems becoming yours. Traditional and manual techniques do not allow you to carry out your strategy consistently, efficiently, or effectively because you will end up spending far too much time dealing with data and not enough time acting on it.
Accounts receivable management software such as Lockstep Collect takes the challenge out of managing credit by giving you actionable data to help you minimize credit risk, reduce bad debt, increase working capital, and much more.