Accounts Receivable Best Practice: 7 Steps for Improving Productivity
Accounts Receivable best practice has at least one element in common with virtually any other best practice recommendation for business. Lose the paper, go digital. It’s staggering to think that, even in some global businesses, AR teams may be printing, folding and stuffing paper invoices into envelopes for post.
Paper is fast becoming a relic from bygone days, at least in a business sense. It’s just not efficient enough for the pace of modern business. Even at a personal level, it’s easy to identify with the inefficiencies of paper-based processes. How frequently do you write letters these days, when instant communication is but an email away?
Working with global businesses, to improve productivity in Accounts Receivable teams, has enabled us to identity a number of key areas for AR process improvement.
Accounts Receivable Best Practice #1: Efficiency
Best practice in Accounts Receivable is driven by the need for improved business efficiency. The biggest threat to business success is, often, wasted time. Replacing paper-based invoice generation with electronic invoicing enables automation of AR processes, freeing up the AR team to focus on more profitable activities that require the nuances of a human touch – such as chasing down late payments and resolving credit issues.
Accounts Receivable Best Practice #2: Visibility of Payment Status
Beyond plain efficiency, AR best practice should include improved visibility of invoicing status. E-invoicing achieves exactly this, with the ability to identify what was sent to whom, whether it was received, or even read, and when. With advanced e-invoicing solutions, such as Corcentric, customers can even mark an invoice, electronically, to indicate payment intent, or pay directly online there and then.
Improved visibility provides insight that can be acted on, to support credit controllers in reducing late-payments and disputes.
Accounts Receivable Best Practice #3: Chasing Payments
One of the most valuable roles AR teams play is to chase down payments and bring the cash into the business as quickly as possible. Collecting money fast is always a major competitive edge.
A well-structured e-invoicing solution should be able to provide an at-a-glance view of outstanding payments, or even a pre-emptive list of habitual late payers to chase before they are due. Sometimes a simple statement can be sent as a timely reminder, encouraging payment. Automation rules can be set to assist with this process and preserve the AR team’s time for more complex or sensitive payment conversations.
Integrating e-invoicing with credit collection software enables seamless and secure access to sensitive documents, and messaging workflows, expediting credit collection. Where possible, this should be a consideration for improving productivity in an AR team.
Accounts Receivable Best Practice #4: Security, Compliance and Ease of Auditing
Whilst security doesn’t necessarily enhance productivity, it’s still made it onto this list as an essential consideration for AR best practice. Given the sensitivity of invoicing information and customer payments, it’s essential that any digital transformation of Accounts Receivable processes – from e-invoicing to automation – complies with industry standards such as ISO 27001:2013.
VAT compliance can be met most efficiently via the use of digital signatures and online record keeping, although many businesses still unnecessarily encumber themselves with paper-based records for the same purpose.
Auditing can prove painful for AR teams when invoice records are stored in paper format. Modern, electronic, systems enable much faster access to documents via search and present the opportunity to generate reports for auditors at the touch of a button.
Accounts Receivable Best Practice #5: Integration with Accounts Payable
The flip-side of every invoice sent is the payment process. In a B2B context, Accounts Payable teams, and increasingly automated AP systems, need to process invoices before payments can be made. Integration of invoice distribution with AP systems is growing in importance as a way to simplify and expedite the payment process.
In some cases, Accounts Receivable teams are manually inputting invoices into customers’ AP systems. Where possible, AR teams should deploy e-invoicing solutions that have connectors for the payment systems they need to integrate with, saving time on inefficient manual processing.
Find out more about how to streamline your invoice delivery to AP portals in our guide to automating invoice uploads.
Accounts Receivable Best Practice #6: Supporting Paper
We do not live in a perfect world, consequently many businesses find the need to support a percentage of customers who still require paper invoices. Industry average conversion rates for customers to accept electronic format invoices are around 60%, although at Corcentric we often achieve in excess of 80% conversion within a matter of months. To achieve the best efficiency gains from electronic invoicing and AR automation it’s essential to handle the remaining paper-based percentage via the same process.
Best practice in this regard is to process all invoices in the same manner, but directing those who require paper to be printed and posted by an offsite solution partner. This removes the need to maintain print and postage hardware in-house and for the manual fulfilment of this time-consuming process. Including within the same invoicing solution enables aggregation of invoicing records and improves reporting, auditing and overall efficiency.
Accounts Receivable Best Practice #7: Outsourcing
Few businesses stop to think about it, but we all outsource postal delivery to the postal service. It’s simply not efficient to run your own postal service.
Indeed, the point above (#6: Supporting Paper) follows a similar line, in that best practice in supporting paper-based invoices is to outsource the whole print and postage process to enhance efficiency. For instance, at Corcentric, we leverage print and post at a hub within the destination country for the invoices, saving time and cost on international delivery. However, these efficiencies are only achievable through economies of scale brought about by the volume of printed invoices we handle for clients on a global scale.
So, printing and posting of invoices are best practice to outsource, but what of the electronic invoicing and AR automation solutions themselves?
As businesses embrace cloud-based and Infrastructure as a Service (IaaS) solutions, it’s common wisdom that high up-front investment in solutions is often better offset in favor of an as-a-service solution funded through savings in operational expenditure.
Companies who attempt to develop and maintain e-invoicing solutions in-house are faced with a massive task. Whilst it’s certainly possible to do this, there’s a reason why global businesses such as MSD, Daimler and VF Corporation choose to outsource their e-invoicing to Corcentric. It is simply not economically viable for most businesses to develop and maintain an e-invoicing solution in-house, keeping on top of evolving invoicing standards and technology requirements.
Outsourcing may raise questions about control and risk, but these are easily addressed. The control remains within the business, as you dictate the requirements, and the outsource partner provides assurances by way of contractual obligations and service level agreements.
By delegating the responsibility you’re allowing someone else to take care of the details and address any risks. Outsourcing allows you to tap in to the knowledge, experience and capabilities most suited to successfully realise the task.