Improving accounts receivable performance can provide a valuable impact on cash flow for any business.
This improvement can be thought of as spanning a number of focus areas, these are:
- Communications – types, frequency and content
- Production – systems and tools to create communications
- Management – reporting, proactivity and escalation processes
We look at each of these here and outline recommendations to review your existing processes and improve AR performance.
Communication tactics to improve AR performance
The communications process in AR is all about striking the right balance between chasing prompt payments and maintaining good customer relations. Invoices are sent with plenty of notice, and ideally customers pay promptly with no further reminder.
In reality, many customers require a little extra nudge. Often this takes the form of a statement – outlining invoice details and reminding of the need to pay. Or a dunning letter, which is typically sent after progressing from polite reminders and direct contact to the need for a firmer demand for payment.
Conventional wisdom is that if an invoice is not paid within an acceptable period, a statement is sent, followed by direct contact and then, if needed, a dunning letter. However, it is valuable to identify whether a customer has actually seen the initial invoice, or statement, before sending the next communication. One of the most common excuses for late payment is ‘not having seen the invoice’, but tools exist to reduce the risk of this now (see the later section on managing AR communications).
In the world of digital communications, many businesses are moving over to electronic invoicing as part of an e-billing intuitive. This presents many benefits to the business, such as improvements in efficiency and accuracy, but increasingly electronic formats are preferred by customers too.
Consider your customers’ needs, do they have automated Accounts Payable systems, or require invoice submittal to a Value Added Network (VAN)? In such cases, connectors exist to mesh invoicing systems from AR with their customer-side counterparts. In some cases, customers will prefer to receive communications by email, or even SMS.
There have been countless studies showing how communication preferences have changed from Generation X, to Y, to Z. Think carefully about your customer demographics, should you be targeting younger customers with SMS, WhatsApp messages, or other channels? Where is the sweet spot for email communications, and when do you need to fall-back on sending printed letters by post?
Improve AR performance through better production
Once you have mapped out your customer communication needs and preferences, you need the tools to effectively deliver these communications. Leading e-billing systems, such as Corcentric, offer the ability to send communications in a variety of media types, spanning print and post, to email, to EDI and direct integration with AP systems and VANs.
Where possible, invoicing and other AR communications should be automated – flowing directly from accounting systems to reduce the risk of human error in the copy-paste of information. Outsourcing to an e-billing specialist, such as Corcentric, enables the AR team to deliver accurate communications quickly and efficiently, allowing them to focus on more profitable tasks, such as chasing late payments and dealing with anomalies.
In the era of electronic communications, it makes sense to allow customers access to their invoicing archives – through an online portal. The use of such a portal can also provide a location for customers to self-service requests for reprints, or even pay invoices online with a card.
Managing AR communications to improve performance
Where modern, electronic, solutions are deployed for AR communications, there is an opportunity to use these to record engagement levels. Forever removing the risk of customers claiming not to have received, or read, an invoice or similar communication. Through the advent of such tracking, reports can be generated on a regular basis to understand who has indicated intent to pay, or paid, and who hasn’t even engaged to any degree.
Armed with the insight into who is engaging, or expressing intent to pay, AR teams can more effectively organise proactive communications to remind customers to pay, or identify who they need to pick up the phone to.
Given the linear, procedural nature of AR communications, it’s not hard to see how many steps in the escalation process can be automated – further improving AR efficiency and performance.
A carefully balanced approach is required to ensure the best communications, production and management practices are in place and aligned to deliver optimal AR performance. Working with an expert partner to outsource aspects of AR processes, such as electronic invoicing and associated communications, is one of the most effective ways to achieve this.