How to fix the Accounts Receivable Mistakes

Every dollar of a company’s revenue becomes a receivable that must be managed and collected. However, collecting ninety-five percent of revenue is not good enough.

Accounts Receivable mistakes are especially costly, leading to direct financial losses or indirect customer dissatisfaction due to delays in execution.

AR Mistakes can:

1. Increase your DSO
2. Increase your write-offs
3. Impact your collection team’s productivity
4. Affect your customer satisfaction

Identifying the common accounts receivable mistakes impacting your cash flow and customer satisfaction can help you avoid making similar errors in the future. 

What to do to fix Accounts Receivable mistakes?

Once you recognize that the mistakes in accounts receivable management are costing you, here is what you can do by managing your ERP, exploring an accounts receivable software and embracing accounts receivable best practices.

1. Get the most out of ERP for accounting and finance

ERP (Enterprise Resource Planning) for accounting and finance is a software system that integrates various business functions, such as accounting, inventory, sales, and purchasing. ERP for accounting and finance can help AR teams to streamline and automate their processes, such as generating invoices, recording payments, and reconciling accounts.

However, ERP for accounting and finance is not enough to handle all the aspects of AR management, especially when it comes to customer communication, collections, and analytics. Therefore, AR teams need to get the most out of their Accounting ERP by following these steps:

Regularly update customer and sales contacts: 

Keeping accurate and up-to-date information about your customers and sales representatives can help you to avoid errors, delays, and disputes in invoicing and payment. You can use ERP for accounting and finance to store and update customer details, such as name, address, email, phone number, credit limit, payment terms, and preferences. You can also use Accounting ERP to assign sales representatives to each customer and track their performance and commissions.

Keep a watch on unapplied payments:

Unapplied payments are payments that have been received from customers but have not been matched to the corresponding invoices. Unapplied payments can lead to customer issues, such as customers claiming that they have paid and you keep sending reminders, or customers receiving incorrect statements and balances. You can use Accounting ERP to monitor and apply payments to the correct invoices, or to create credit notes or refunds for overpayments or duplicate payments.

2. Understand the limitations of the ERP for accounting and finance : 

ERP for accounting and finance is a powerful and versatile software system, but it also has its limitations when it comes to AR management. Some of the limitations of ERPs for accounting and finance  are:

It is not designed for customer communication and collaboration: Accounting ERP can generate and send invoices to customers, but it cannot provide personalized and proactive communication, such as sending payment reminders, acknowledgments, receipts, and thank-you notes. Moreover, Accounting ERP cannot handle customer queries, complaints, or feedback, which are essential for building trust and loyalty with your customers.

It is not optimized for collections: Accounting ERP can track and report on overdue accounts, but without heavy customization, it will fall short of helping you to prioritize and collect them effectively. Accounting ERP comes with limited functionalities to segment customers based on risk and behavior, assign collectors to each account, schedule and record collection activities, or offer payment options and incentives to customers. Moreover, Accounting ERP cannot automate collections tasks, such as sending dunning letters, applying late fees, or escalating legal actions.

It is not equipped with analytics: Accounting ERP can provide basic reports and dashboards on AR performance, but it cannot provide advanced and actionable insights, such as identifying trends, patterns, and opportunities, benchmarking against industry standards, or forecasting cash flow and revenue.

To overcome these limitations, AR teams need to complement their Accounting ERP with specialized accounts receivable software.

3. Embrace Accounts Receivable Automation

Accounts receivable automation is the process of using technology to perform and optimize AR tasks, such as invoicing, payment processing, collections, and reporting. Accounts receivable automation can help AR teams to improve their efficiency, accuracy, and productivity, as well as reduce their costs, risks, and errors.

However, many AR teams still rely on manual and paper-based processes, which have their limitations

To overcome these limitations, AR teams need to embrace accounts receivable automation software which can help AR teams to automate and optimize their AR tasks, such as:

• Invoice alerts and reminders: One send invoices automatically, using predefined templates, rules, and schedules. You can also use Ar automation to send invoices via email, SMS, or online portal, as well as attach supporting documents, such as contracts, purchase orders, or delivery notes.
• Payment processing: AR automation  can help you to process and apply payments automatically, using various methods, such as credit card, bank transfer, or online payment. 
• Collections: AR automation software like Kapittx can help you to collect your outstanding payments automatically, using various strategies, such as payment reminders, dunning letters, late fees, or legal actions. You can use Kapittx to set up and execute collections campaigns, based on your customers’ risk and behavior. You can also use Kapittx to monitor and track the status and progress of each account, as well as communicate with your customers and collectors via email, SMS, phone, or chat.
• Reporting: Kapittx can help you to generate and access reports automatically, using various metrics, such as DSO, aging, cash flow, revenue, and customer satisfaction. You can also use Kapittx to export and share your reports, as well as receive alerts and notifications on your key performance indicators.

4. Redefine Dispute Management process

Dispute management is the process of resolving disputes or disagreements between the business and the customers, regarding the invoices or payments. Dispute management is an important aspect of AR management, as it can affect the customer satisfaction, loyalty, and retention, as well as the cash flow and revenue.

AR teams need to leverage AR automation software, such as Kapittx, to build automated dispute management workflows suited for their organization. The key is to identify the right dispute resolution owner and the time by which the dispute can be resolved. Only when the dispute is resolved, the payment will get processed from the customer. Some of the benefits of using AR automation software for dispute management are:

• Faster and easier resolution: AR automation software can help to resolve disputes faster and easier, by automating and streamlining the dispute management process, such as:
  • Detecting and flagging disputes
  • Assigning and notifying owners
  • Tracking and updating status

• Improved customer communication and satisfaction: AR automation software can help to improve customer communication and satisfaction, by providing timely and personalized communication, such as:
  • Acknowledging and apologizing for disputes
  • Updating and resolving disputes
  • Soliciting and acting on feedback

5. Have an effective Payment Reminder system

Payment reminder system is the process of reminding customers to pay their invoices on time and in full. Payment reminder system is an essential aspect of AR management, as it can affect the cash flow and revenue of the business, as well as the customer relationships.

To fix the payment reminder system, AR teams need to have an effective and automated payment reminder system, using software solutions like Kapittx. Kapittx can help AR teams to send timely and personalized payment reminders, using various channels, such as email. Some of the benefits of using Kapittx for payment reminder system are:

• Increased payment rate and speed: Kapittx can help to increase the payment rate and speed, by sending payment reminders that are tailored to each customer’s preferences and behavior, such as:
  • Frequency: Kapittx can help to determine and adjust the frequency of the payment reminders, based on the customer’s payment history and risk profile. For example, Kapittx can send more frequent reminders to customers who are habitually late or delinquent, and less frequent reminders to customers who are consistently on time or early.
  • Content: Kapittx can help to customize, optimize and personalize the content of the payment reminders, based on the customer’s invoice details and payment options. For example, Kapittx can send reminders with the invoice number, amount, due date, and payment link, as well as offer payment options and incentives, such as credit card, bank transfer, or online payment, and discounts, rewards, or loyalty points.
  • Tone: Kapittx can help to adapt and vary the tone of the payment reminders, based on the customer’s payment status and relationship. For example, Kapittx can send reminders with a friendly or firm tone to customers who are due or overdue, and a harsh or legal tone to customers who are severely overdue or unresponsive.
  • Acknowledging and thanking for payments: Kapittx can help to acknowledge and thank customers for their payments automatically, by sending customized and appreciative messages, such as email, SMS, or chat, to confirm and receipt their payments, and to express gratitude for their business.
  • Updating and resolving payment issues: Kapittx can help to update and resolve payment issues automatically, by sending relevant and proactive messages, such as email, SMS, or chat, to inform customers about any payment errors or discrepancies, and to provide solutions and actions to fix them.
  • Soliciting and acting on feedback: Kapittx can help to solicit and act on feedback automatically, by sending surveys and ratings to customers, such as email, SMS, or chat, to ask them about their satisfaction and experience with the payment reminder system, and to use the feedback to improve the system and prevent future issues.

6. Measure unbilled to Invoice to cash lifecycle stages

Unbilled to Invoice to cash lifecycle stages are the stages of the process of generating and collecting revenue from customers, from the initial contact to the final payment. 

Measuring unbilled to Invoice to cash lifecycle stages is important for AR management, as it can help to:

• Improve cash flow and revenue: Measuring unbilled to Invoice to cash lifecycle stages can help to improve cash flow and revenue, by identifying and reducing the gaps and delays between unbilled to invoicing stages, such as:
  • Reducing unbilled revenue: Measuring unbilled revenue can help to reduce it, by ensuring that the invoices are generated and sent as soon as possible, and that they are accurate and complete.
  • Reducing DSO (Days Sales Outstanding): Measuring DSO can help to reduce it, by ensuring that the payments are tracked and collected as soon as possible, and that they are applied and reconciled correctly.
  • Increasing cash conversion cycle: Cash conversion cycle is a measure of how long it takes for the business to convert its inventory into cash. A low cash conversion cycle indicates that the business is efficient in managing its working capital, which can result in increased profitability and growth. Measuring cash conversion cycle can help to increase it, by ensuring that the inventory is optimized and sold as soon as possible, and that the cash is used and invested wisely.

7. Define AR process KPIs

AR process KPIs (Key Performance Indicators) are the metrics that are used to measure and evaluate the performance and effectiveness of people and the AR process, such as invoicing, payment processing, collections, and reporting. AR process KPIs can help to:

• Monitor and track progress: AR process KPIs can help to monitor and track the progress of the AR process, by providing quantitative and qualitative data on the status and outcome of the AR tasks, such as the number and value of the invoices, payments, and overdue accounts, or the feedback and ratings from the customers and collectors.
• Identify and analyze issues: AR process KPIs can help to identify and analyze the issues in the AR process, by providing insights and trends on the causes and effects of the AR problems, such as the errors, discrepancies, or disputes in the invoices or payments, or the delays, reductions, or losses in the revenue or cash flow.
• Improve and optimize performance: AR process KPIs can help to improve and optimize the performance of the AR process, by providing benchmarks and goals for the AR teams and individuals, as well as by providing recommendations and actions for the AR improvement and optimization, such as the best practices, policies, or strategies for the AR process.

Defining AR process KPIs is important for AR management, as it can help to:

• Align and communicate objectives: Defining AR process KPIs can help to align and communicate the objectives of the AR process, by establishing and sharing the vision, mission, and values of the AR process, as well as by defining and communicating the expectations and standards of the AR process, such as the quality, quantity, and timeliness of the AR tasks.
• Evaluate and reward performance: Defining AR process KPIs can help to evaluate and reward the performance of the AR process, by measuring and comparing the actual and desired results of the AR process, as well as by recognizing and rewarding the achievements and contributions of the AR teams and individuals, such as the incentives, bonuses, or recognition programs for the AR process.
• Learn and grow: Defining AR process KPIs can help to learn and grow from the AR process, by collecting and analyzing the feedback and data from the AR process, as well as by implementing and testing the changes and improvements for the AR process, such as the training, coaching, or mentoring programs for the AR process.

In conclusion, fixing accounts receivable mistakes will fix the revenue and profit leakage holes. It will help you to increase revenue, enhance customer satisfaction, and reduce expenses 

The benefits can easily total millions in profit and tens of millions of cash flow in a year.