8 Tips to Start Using Right Now
At Big Bang, we enlist a proactive approach with all of our business processes – Accounts Receivable (AR) included. Having a systematic and consistent collection process triggers a positive impact throughout your business. In this post, we share some simple, tried-and-true AR practices of our own that any company can adopt to streamline their Account Receivables process.
The following best practices can help you collect payments faster while saving time, resources, and improving the customer experience.
1. Automation of accounts receivable
Automating your accounts receivable is the best option to simplify the processing of large volumes of customer invoices. A good AR automation with an ERP system improves the AR process’s efficiency and effectively reduces human error.
Invoicing could be time-consuming, but using a system like the ERP system, will help you optimize the time spent on this task and stay on top of invoicing.
Having an automated billing process with the ERP system enables you to:
- Create email templates
- Customize billing frequencies
- Improve the accuracy and timeliness of customer’s invoices
- Send recurring electronic invoices to customers faster
- Generate account statement with a few clicks
- Generate customer details, email communication, financial details, and many more
- Save time on constant manual adjustment and generate an accurate AR Aging
Ultimately, companies that automate their billing process enjoy lower processing costs, quicker invoice cycle times, enhanced customer relationships, and more effective cash management (but that’s a blog for another day).
Maintain Customer Data
Customer information is just in too many places – Excel? Google Sheets? PAPER? (!!!) – and it takes forever to find what you need? The biggest challenge of staying organized is getting all customers’ information stored in one place.
What’s the solution? An ERP system that allows you to enter and access data on the go, with clear and accessible data visualizations and dashboards.
Consider integrating a customer data process to validate the accuracy of customer accounts. This information is necessary to establish and preserve an effective AR process. At Big Bang, we ensure having different contact information, usually contacts related to the accounting teams. All pertinent details and information related to customers can be consolidated and accessible in just a few clicks, including:
- The responsible Project Manager and Account Manager
- Contact Information (Main person to contact, AP department, contact who will approve the invoices, and other alternate contacts)
- Communication (all emails sent to the customers)
- Transactions (all details related to open/closed invoices, payment, and deposit)
- All other important info such as currency and its conversion, payment frequencies, rates, discounts, follow up notes
ERP systems offer you a more reliable record-keeping and all information in a simple view.
A dashboard example of a financial accounting ERP system (Oracle NetSuite)
2. Implement shorter payment terms
Generally, the use of shorter payment terms encourages customers who pay slowly to pay faster. A shorter payment term means reducing delays from 30 or 60 days to 10 days. The sooner you collect your money back, the better it is.
3. Adopt an effective collection plan
Establish a reasonable collection practice by adopting a clear and concise collection strategy and making it a top priority. When you have an automated AR, and when an account slips into the overdue column, the AR team will be able to see all the outstanding accounts through the system. It will start the AR process following established collection guidelines.
Start with generating invoices accurately and sending out invoices electronically to the customers, then proceed with an effective accounts receivable workflow for the outstanding accounts as follows:
- The Invoice Is Due: It is a good practice to set up an automated weekly reminder email for the customers after their due date to resend the invoice, along with the account statement. The email should also include a kind nudge, prompting them of the due date, amount owing, and payment terms.
- Week 2: If the first reminder email has no response after five business days, it is time to follow up again. Schedule another automated to send to the customer that includes all details as the first email, ensuring reminders and invoices do not go unnoticed.
- Week 3: If another week goes by without communication, this time, try switching to a telephone conversation. If you reach the right person, first make sure everything is working fine on their side. Instead of hammering customers with phone calls and collection emails, it is best to know first if they are going through any challenges. When customers see you as accessible and thoughtful, they may be willing to make payments over time or negotiate an alternative to settle their debt. If the phone call goes unanswered, leave a voicemail, followed by an email explaining their account’s current status.
In the conversation or reply, the customer should let you know if any significant issues are holding up payment of their account (such as missing invoice information, cash flow issues, or other related concerns).
- Week 4: If the customer agrees to work on a payment plan with you, it is for the best. However, if the customer is still not reachable, try other company contact information or emails.
Each follow-up and communication with the customer regarding the AR collection should be recorded in the ERP software, which makes it easier to keep track.
4. Credit Analysis and Accounts Receivable Insurance
When customers are unreachable for a longer period, and you already tried everything you possibly could, consider an Insurance company. This type of coverage is significant since it helps to reduce credit worries and protect the company against unexpected losses caused by the accounts receivable records.
They provide services to choose the best and right customers and markets to avoid bad debts. They also provide credit risk management solutions for businesses operating globally, including trade credit insurance, credit insurance, debt collections, risk management, account receivables, risk monitoring, fraud cover, and more. However, it’s best to make sure that your customers are covered since the beginning.
5. Simplify the Payment Process
Accepting different payment methods is a practical approach to improve customer experience and avoid unnecessary payment frustration. Some companies prefer writing and mailing checks, but it is worth offering alternative payment options such as ACH, Electronic Funds Transfers (EFT), credit cards/debit cards, and Interact. Another way is to accept online payments and include the portal’s link on the invoice, making it easier for customers to pay quickly and securely. Using digital payment is convenient, fast, and secure.
6. Impose penalties on late payers
The concept of late payment fees may prompt customers to pay you as soon as they can, or at least to communicate with you if they are unable to do so. Penalties policy can be agreed upon in the initial agreement between both the customer and the company. It is convenient, easier, and faster to compute the late payment interest in the ERP software.
7. Conduct weekly AR review
A weekly AR review provides clarity and direction. It’s well worth the half-hour-long investment each week to review the AR aging report and report extracted from the ERP software, including all the latest follow-up notes updated by the AR teams. This weekly review is also an opportunity to analyze what went well and what didn’t and plan for the week ahead. It’s a chance for management to get aligned with the AR’s current state and provide feedback and solutions.
Topics discussed during an AR Review could involve:
- Prioritizing accounts over 50 days overdue, over $10,000.
- Highlighting accounts that are not reachable and leverage any existing internal relationships that Project Managers might have with the customer to move forward using established relationships.
- Discussion about customer dissatisfaction or any other project-related issues.
- Pointing out any client’s financial matters and decisions to put the project on hold to limit the company credit risk.
- Any other management decision.
8. Include AR as a company priority
Account Receivables should be a company’s priority and not just the Finance department’s responsibility. The Account Management team and Professional Services teams should be able to jump in whenever a problem arises with the customer. The whole team should work together to create a positive impact.
Show them real facts and statistics of teams that have worked together and become powerful revenue creators. Keep everyone updated on what is happening, whether customer-facing or internally. Communicate the AR turnover days as a company metric, so the team is aware of its positive or negative situation. Once there is an established relationship, and communication flow, you will notice an increase in sales and collection efforts.
The faster the work is done, the quicker you get paid!
In the business world, you need to consider the best practices to leverage your accounts receivable. Doing so will pay handsomely in the long run, and it will help to avoid write-off levels, which in turn will save your company valuable time, money, and resources. At the same time, always ensure to place your customer at the pith of your AR process. The sooner businesses can receive payments for goods and services rendered, the better for their bottom line. Preferably, aim to act early. The longer you let an unpaid invoice sit, the less likely it is that your customer will pay it. Knowing how to speed up the collection of accounts receivable is key to your company’s continued success.