5 Tips to Improve Accounts Receivable Collection

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It’s that time of the month again…

It's time to get your money from your debtors. By the time reality sets in, you are all anxious to know whether your customer will pay you or not. Even the best of your customers might struggle at times to make prompt payments.

It’s not a pleasant thing to have your cash stuck with your customers. The worth for your product or service is realized only when you get paid for it. Sadly, not all customers pay on time and this is especially when you offer your services on a credit basis. Customers need that extra push to make payments. While sometimes it is just as simple as sending an extra reminder email, for others, it is a constant follow-up or helping them resolve invoice disputes.

For a business, it is not a simple task to remember all of its customers and their payment patterns. While following up is the task of the collections team, in many instances they would not even know when the payment is made. Going back to customers again requesting for payments even after they have paid can hinder customer services.

This is one of the many challenges faced in the collections process. Good management of your debts is important to keep up the goodwill of your company. Another reason why it's important to improve your AR collections is that it helps you count on that money when your business might face cash shortages.

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5 Common challenges in AR collections process

Why is the collection process so tricky? The answer to this question is that the current AR process you have in place is not robust enough. Some shortcomings to name are errors in invoice creation, not following up with customers on a timely basis and difficulties in prioritizing accounts. One thing these issues have in common is that they all arise during the manual accounts receivable process.

1. Challenges in accessing data

Data is very important when it comes to predicting how a customer will pay in the future. Companies usually record information in traditional tools like excel. This makes it difficult to access historical data for prediction. The inability to predict can lead to poor decision-making.

2. Missing information in invoices

The manual creation of invoices is susceptible to human error. Essential information like date, name of the customer, amount, etc. can be recorded incorrectly. This raises invoice disputes that slow down the process.

3. Dealing with delinquent invoices

No matter what, some customers always pay late. But it’s not a problem that cannot be dealt with. It could also be due to cash flow problems on their end. Recording information in traditional tools can make it difficult to identify such customers.

4. Matching invoices is often time-consuming

Paper invoices can make matching extremely challenging. This takes a lot of time. Furthermore, errors in manual invoices can pause the processing and get stuck as the ADP keeps increasing.

5. Customer complaints about not having enough time to pay

It is sometimes true that customers are cash-strapped and unable to make faster payments. Different customers necessitate distinct approaches to payment collection. This is typically determined by the nature of their business. A pharmaceutical company, for example, may pay faster than a manufacturing company because the latter's cash flow is determined by how quickly they sell their products and collect payments from their vendors.

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5 ways to improve the accounts receivable collections process

1. Create an aging report

Cash flow prediction is critical to make decisions about borrowing funds from other sources for working capital needs. An aging report helps comprehend data on customer payment behavior.

Running frequent aging reports will also identify delinquent accounts. When you automate your AR process, taking out an aging report becomes much simpler. It expedites forecasting and saves time as you will be able to extract the report in just a few clicks.

The aging report will also track collection activities and the team’s performance. Data for how many invoices are collected, how many are pending, and top debtors, can all be seen in one place.

2. Create a collections strategy for customers

Because not all customers conduct the same type of business, they cannot pay in the same manner. While some may pay before the due date, others may pay later. This is why understanding your customers is so important in the collection process. Examine their business model, cash flow statements, and creditworthiness. Using this information, develop custom collection strategies to ensure that payments are not delayed due to inefficient AR management.

3. Offer multiple payment options and incentives

In many types of business transactions, the practice of paying by check or cash is declining. As we move toward digital payments, your customers will expect you to provide them with a variety of payment options. The mode of payment can sometimes demotivate a customer from paying.

Switching to AR software with integrated payment gateways is another great step toward streamlining your AR process. Penalties and rewards should also be incorporated into the process. Customers who pay on time will receive discounts, while frequent defaulters will face penalties. This communicates that you have a strong collection system.

4. Keep communication as the primary key

Many times customers get annoyed and do not pay because they are followed up on even after having paid their dues. This majorly comes due to a lack of communication and collaboration between the sales team and the collections team. Payments also get delayed when disputes in invoices are not resolved.

This can happen when the dispute resolution process is inefficient. For instance, many times you might not have a record of the customer’s response and conversation about the dispute. This can reflect poor customer service.

When you use an AR automation tool like Growfin, you are enabling collaborative collections that can solve many inefficiencies in the process. Finance can escalate invoices or create disputes from Growfin as cases in Salesforce for the sales rep to resolve.

5. Automate your process for an effective collections process

How would it be to invest time in making an effective collections strategy than sending redundant follow-up emails? According to Code Integration, on average, it takes one hour to process just five paper invoices manually. Using an automation tool means you can bring down the time taken to at least three times what it takes manually to complete the task. Quicker processing ensures that customers are sent out invoices early and are followed up regularly. This can have a positive impact on DSO. By automating your collections process you also save on hiring more people for the collection process as the company grows.

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Get the Growfin advantage

As business grows, stakeholders focus more on business expansion. Manual invoice collections take a backseat as it is time consuming and is costly. Automating the collections process and using the right tools can help decrease the time spent on collections activity. Wedding aggressive dunning emails with no strategy can put customer satisfaction at risk.

Growfin can help you collect strategically with an option to send personalized emails. You can also create custom strategies for various types of customers based on their past payment behavior. Growfin is a tool that can perfectly blend in your current tech stack that can help you collect efficiently.

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