Accounts Receivables Management (ARM)

A strategic approach to collect faster.

Accounts Receivable Management (ARM), is a financial term that bores wealth and weakness on two sides. While ARM opens the chronicles for a long-sighted customer relationship, there also rises a disquieted credit row on the company’s balance sheet. Customer creditworthiness, harmony between sales and finance teams, demonstrated AR processes with minimum efforts, and responsible ownership are key elements that sum to a hassle-free and goal-oriented accounts receivables approach. 

In layman’s terms, ARM ensures the credits from customers are dully paid within the given time, to streamline fund flow and equip businesses with sufficient working capital. Simpler than it sounds, the process carries a lot of complexities in achieving it and most businesses come up short. 

Current Financial Environment 

Most businesses have laid down clear AR policies, however, a lot of them are yet to learn their ropes on the different aspects of accounts receivables - prompt invoicing, acknowledged due dates, receivables timing, out-standings, discounts & agreed payment terms and write-offs are all different cornerstones for an efficient AR planning.  

Locked cash is a delayed asset, as long as companies strictly adhere and keep in step with a planned approach the play is safe, yet, many try and override the rules in the process of increasing sales, retaining customers and in other cases a simple lack of ownership causes devastating chaos to track the trapped cash. 

In the process of scoring the number of sales deals, businesses fail to keep a close eye on the AR policies and by the time this is realized, there’s already a hit on the working capital. A profound approach is needed, where new sales and repeat deals make a tangible impact on the balance sheet, by bringing cash into the business without straining the customer relationship.  

Refined AR approach

While accounts receivable is a lengthy process, understanding the customer’s capacity and credit worth is vital, to begin with. When designing an AR strategy, it is important to emphasize the plan clearly across the sales, marketing, and finance verticals of an organization, so that the teams work in unison toward the common business objective. 

Every transaction with the customer has to be documented and must be available to all the stakeholders involved in the process. Understanding that AR is a repetitive process, it is important to establish a step-by-step approach and none of the steps could be skipped. 

A typical AR collection process will incept with the sales and delivery of goods, submitting the invoice, collecting payment (complete or partial payment), balance payment is recorded and tracked by the AR team, and the invoice is cleared once the payment is collected else it is written off as bad debt. Every business strives to avoid the bad debts on its books, and some of the following strategies will aid the process 

• Clear segmenting of the customer base
• Creating a proven AR plan
• Effective follow-up and the clear communication message
• Professional dunning approach

A simple way of segmenting customers based on past payment experience will help the receivables team to establish the desired number of touchpoints. Every past communication response from the customer will be vital to categorize them and then a follow-up plan is devised for each group. 

An AR plan aims to keep the receivables time frame as minimum as possible, a delayed payment gets risker as the days pass, hence, it is important to cut down the credit extension days. An average invoice time can roughly last up to 3 months, a consistent and efficient follow-up is needed depending on the customer base. 

Large companies have multiple approval levels which could cause payment delays, addressing the right person could speed up the process and turn around the invoice. However, in small and mid-sized companies, frequent reminders will be needed to prioritize your deals over others, in this case even incentivizing early payments will bring a win-win situation to both parties. 

Dunning could be an irritating process if not approached in the right way, genuine understanding and empathizing with customers is the first step in the vicious cycle. When worked with the right tone, dunning could break several impediments and make payment collection a super-efficient process. Similarly, follow-up is a very understated word in the receivable’s context, the intention of every follow-up mail cannot be mundane and humdrum, a personalized approach in every follow-up will yield great rewards.   

Using an Accounts Receivable automation platform will enable you to narrow your focus on one thing – getting paid faster. 

Making facts your friend is what Kapittx does best. When it comes to reducing Days Sales Outstanding (DSO), the SaaS platform gives you a factual view of what’s working and what is not, and why? It helps you establish a successful cause-and-effect relationship between customers’ accounts payable cycle, invoice life cycle management, and collective ownership. 

Kapittx will enable your collection teams and sales teams to collect payments faster and more efficiently than before. Experience how Kapittx will speed up the payments and reduce DSO by more than 30%.

Request a demo and get a 14 days Free Trial now.

Kumar Karpe

Co-founder & CEO