Create Champions Out of Accounts Receivable Specialist

As an Accounts Receivable ( AR )  Manager, everything you and your team do will impact customer relationships and the company’s cash flow. It is an excellent position to be in because you manage one of the top three assets on your company’s balance sheet. This may result in you carrying much weight on your shoulders. 

What is expected from an Accounts Receivable Manager?

In general, an overview of the job description and expectations is summarised as follows: A professional who will lead and manage the existing Accounts Receivable (AR) team and is responsible for overseeing the day-to-day operations of the AR function. The ideal individual will coordinate with all internal and external stakeholders to ensure the timely collection of invoices and other AR-related tasks while continuing to scale the team by implementing new and more efficient processes. In addition, you are responsible for continuously improving department policies and procedures, including reviewing current methods and systems and implementing improved strategies.

Let us list down the top five job specifications that are expected from an AR Manager and her / his team –

1. Lead and Manage 

You are managing an asset portfolio, and, as a portfolio manager, you are also responsible for leading a team of portfolio specialists, overseeing the various task of each team member, and providing advice whenever necessary. You are expected to minimize Days Sale Outstanding and achieve defined goals with the Company’s Management and Dept. You need to train and mentor the Accounts Receivable team on performance optimization, customer interaction, product knowledge, collaboration with internal stakeholders, customer service, and more. 

2. Functional

The primary functional responsibilities for this role include managing invoices, ensuring timely payments, handling missed payments, and supervising the daily activities of Accounts Receivable specialists. You need to review the posting of AR batches (Invoices, Payments, Credit Memos, and Debit Memos), month-end reconciliations, and corresponding journal entries.

3. Client Communication and collection  

Manage the list of customer portfolios, which includes building relationships, timely communications with reminders, following up on overdue, and monitoring customers at risk. Depending on the business and customer requirements, your team needs to ensure invoice and the relevant supporting documents are submitted in line with the customer’s payable process.

4. Manage disputes and discrepancies 

Maintain and reconcile customer accounts and deal with issues or invoice discrepancies, such as pricing, quantities, billing issues, etc. By partnering with internal stakeholders such as Customer Success, Revenue, and Sales, you are expected to assist in resolving billing disputes.

5. Audit and Reporting 

You must ensure that your team meets financial accounting objectives by forecasting requirements, identifying trends, determining system improvements, and managing change. Review customer accounts on an ongoing basis to assess the collectability of receivables and to report potential problem accounts. While you need to build and maintain key metrics and dashboards for weekly reporting to management, you are expected to identify and communicate payment or issue trends to the leadership team promptly; assist with audit requests as needed.

While that’s a lot on your shoulders, let’s go through the strategic approach that can make you and your team successful.

Here’s the strategy and checklist for success –

A good strategy is not an accident. To manage Accounts Receivable requires a strategy and a process. It is about action. Whether good or bad, your strategic approach needs to reflect in the everyday activities of the business. 

A good Accounts Receivable management strategy and process must be carefully defined by assessing your customers, organization’s capabilities and with appropriate measurements in place. Not only is it essential for the rest of the organization and key stakeholders to know your game plan, but it is also equally important to have common grounds on what they can expect from your department and your expectations.

1. Map your portfolio

You are managing a financial asset; having a view of your portfolio is critical. However, being your team captain, analyzing your AR portfolio along with your team’s skills and capabilities can be a great starting point. It will lay down the path to your success.

Depending upon the nature of your business, the number of customers, and the volume of invoices, you can use an approach suitable to your business situation. For instance, 

1. Concentration of receivables: Is it skewed towards the top 10% to 20% of customers, or does only a small volume of invoices contributes to a large portion of receivables?
2. Customer mix: Classic example will be Private V/s Government. The approach, process, and effort required will be very different for the industry segments your customers belong to.
3. AR team composition: Define AR Specialist to customer ratio. This will vary basis the complexity of your business, customer mix, invoice volume, degree of automation, the experience of your team and their skills

2. Gap Analysis and time suckers 

Generally, a new strategy is stimulated by dissatisfaction, a perception of a gap between current and desired performance. How often would it have happened where management expected a certain amount of cash to come in, and you fell short?  

Prepare a performance gap statement, ideally quantified, of the shortfall between current receivables results and those that were expected. Ensure you, your team, and the management have a common view of the opportunity gap, a quantified assessment of the discrepancy between current and achievable results. While performance gaps can often be closed by focusing on superior execution, closing an opportunity gap requires a new approach and may include box thinking or even leveraging an Accounts Receivable Automation platform. 

While doing a gap analysis, the focus should be on what is slowing you on collection – Process, Technology, or People. For instance, if you are using Xls sheets to track AR or sending emails manually, it will suck a lot of your team’s time and bandwidth. 

There are cases you may find gaps in Invoicing delays, invoices not reaching the customers on time, or manual reconciliation leading to errors.

3. Segmentation 

Your sales and marketing colleagues will swear by this statement – not all customers have a similar need. With receivables, not all customers you are following for payments will have a similar process, and nor every invoice deserves the same approach or attention.

Segmenting your receivable portfolio helps to bring together customers and invoices with similar characteristics on a common platform. It will facilitate devising appropriate collection strategies according to the customer or invoice you are acting upon. You will be able to adopt a more focused approach as a result of AR portfolio segmentation.

In simpler words, the segmentation process goes a long way in influencing collection efficiency and faster payments

The guideline for segmentation can vary, and a few of the categories are –

1. Aging of invoice
2. Balance outstanding
3. Receivables past the due date
4. Timing of invoice submission
5. Customer’s need for additional documents with the invoice
6. Invoice with partial payments or payment on hold. These could be disputed or invoices with discrepancies 
7. Customer’s industry – Private Sector, Government Sector
8. Customer’s red flagged by Sales  or Customer Success

Your communication and payment reminder strategy will significantly vary basis the segmentation. For example, knowing there is a customer red-flagged by sales since there is a considerable deal under negotiation, you may want to assign that customer to your most experienced collector with a comment – “handle with care.”

Receivable past due and early identification of its reason can make a difference between getting paid or leading to a write-off. There is a direct correlation between deductions ( short payments ) and disputes. 

Disputes are inevitable, but their ownership is not. A disputed invoice may warrant identifying a resolution owner or collaborating with all internal stakeholders – customer success, sales or pricing, etc. It’s only after the resolution of the dispute that your team will be able to collect the payment.

4. Communication strategy 

Timing is everything! It is better to remind customers earlier than later to get timely payments. 

Personalisation, Being Polite, Consistency, and Persistency are the four pillars of AR communication.

While designing your customer communication and receivable reminder strategy, ensure you have inputs from functions like Sales or Customer Success.  Given the dynamic nature of the business, having an open channel with the internal stakeholders is crucial to customer communication, its impact on relationships, and additional business your colleagues will enjoy.

To ensure your team saves time on email reminders, create email templates specific to the customer segmentation. Consider leveraging the AR Automation platform to boost your communication strategy.

5. Metrics, Reports, and Analysis 

If you cannot measure it, you cannot improve it. The excellent part about Accounts Receivable management is that almost every aspect of it can be measured. Daily collections, Days Sale Outstanding ( DSO ), interest lost due to delayed collection, Write-offs, invoice aging, dispute resolution time, overdue invoices, AR Specialist / Clerks target V/s achievement and many more parameters. 

Having clarity on the success metrics backed by the right set of reports will be crucial to successfully managing the receivables. However, preparing reports should not be time-consuming and overwhelming. Instead, your team should focus on analyzing data to improve results and get paid faster. 

Imagine an AR system that offers any information you need with not more than two clicks. The analytics system should lead to actions and drive focus on those invoices and customers that matter.

Be proactive and consistent in reporting to the management. The last thing one wants is management involvement, pace setting, and asking for special reports and analysis.  

Making a difference

Being the owner of managing one of your company’s most extensive financial portfolios can be rewarding, and you should be proud of yourself. 

By ensuring cash is always available, Accounts Receivable managers are making a difference by directly contributing to the growth of the business in many ways. It is inspiring and impactful work!

Do you find your work inspiring and creating impact in your organization?  Are there any topics that you see are essential and that I have missed? 

Please click here if you are in the Accounts Receivable space and interested in having a conversation.

Kumar Karpe

Co-founder and CEO

Kapittx