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