14 Best Practices to Solve Accounts Receivable Challenges

Accounts Receivables operations are critical for businesses as it influences cash inflows negatively and becomes much tougher for the management of Accounts Receivable. Driving more AR process cycles results in a series of challenges that organizations have to deal with. OURS GLOBAL’s Accounts Receivable Outsourcing Services have garnered many tactics for learning their main challenges in terms of their accounts receivables services. This article is aimed at acknowledging businesses small, medium, and large scale for increasing their productivity cut down Day Sales Outstanding and portfolio risks. With problems in controlling labor costs, letting customers struggle with electronic invoices, and attempts to the extension of terms will result in default, delayed, or missed payments. If the in-house accounting team is capable to control AR processes, they can handle challenges in a short interval by understanding the result-oriented techniques and industry-suggested tools for overcoming challenges effectively to overcome issues.   

Following are the Best Practices to Solve Accounts Receivable Challenges:

1. Extensive Analysis of AR Process

Weekly or day-to-day Accounts Receivable assist organizations in preventing customer defaults or identify defaulting ones with whom future deals must not be done. Cutting down AR balances over time, this approach gives more time for resolving problems before they become disastrous. Incorporating simple & direct steps will overcome AR challenges diligently and on time for preventing issues related to cash flow. With the help of a well-reputed and efficient service provider, it’s quite easy for ensuring AR balances within the limits.

2. Report Customers to Credit Bureaus

Credits affect a company’s abilities to be qualified for loans, lines of credit and drive business deals with new partners. Each customer’s payment history is shared with credit bureaus such as Experian, Equifax, and Dun & Bradstreet for encouraging on-time payment. But before initiating these methods, clients should be priorly informed of the updated company policy. Consistent late client payments must be discouraged with warnings that further reporting will affect their credit rating. Thus customers can be clear that they will be on the losing side if they choose not to meet the terms.   

3. Require of a Deposit

Enforcing clients for immediate payments just after their purchase will smoothen the whole accounting and billing process. Collecting a deposit from the client’s side, even if it’s a small amount will be helpful. Customer late payments can easily be nullified with an upfront payment of deposits. Collecting a second installment can only do good in the event of a certain amount of the work being done, and the final payment is upon completion. 

4. Minimum Portfolio Risk

With a thorough understanding of customers, the in-house accounting team can skillfully manage portfolio skills related to Accounts receivable, enabling them to differentiate between good credit risk and bad credit risk. Poor monitoring of creditworthiness, negative customer references, or failure in the verification of customer references must be avoided. Eliminating such practices by ensuring clients fill their credit application forms. Note the increase in repeat credit requests and keep a note of customer creditworthiness and how they vary with change in time. Developing a credit score for each customer and making appropriate changes to the same in the event of late or default payments. Understanding variations in customer creditworthiness is critical for maintaining positive financial health before giving additional credit or pursuing further business with them. While following up customer credit references, rather than asking their due payments with sending remainders, sending statements to non-complying accounts. With this approach, the AR department can expect they can collect at least some of the pending payments. 

5. Improved AR Productivity

Improving AR productivity is closely linked to the AR process. Incorporating ERP or accounting system for AR management will also manage the invoice collection process. Payment collectors while collecting customer information, updating spreadsheets, correcting data errors, and other non-value-adding activities must focus on communicating with customers, settling disputes, and performing other activities that would expedite payment. Automating the AR process enhances AR productivity by faster payments. Electronic invoicing expedites the collections process by streamlining the business process, improving cash flow at minimum operating costs, and improved customer service. Supporting collectors to pre-empt customer disputes or payment delays, optimum AR productivity eliminates the need for rekeying order information, the minimum requirement for invoice filing, and lower storage costs.

6. Improved Billing Operations

Ensure to send out invoices on time upon the sale of goods or services rendered. Verification of billing address with electronic invoicing will ensure prompt sending of customer invoices. The longer they receive the invoice, it would take more time for the payment too. Even though they do not fetch immediate payment, it at least allows clients for asking invoices to resolve any issues that may result in late payment. Communicating with customers about billing policies clearly will guide them on when to pay and how much to pay.  

7. Awarding Incentives

Discounted terms fetch quicker payments and early payment incentives such as a small discount for early paying customers will speed up cash flows, saves up on loan fees, and get similar discounts from creditors. Businesses thus must offer discounts for customers who pay within a certain period.   

8. Increase Payment Methods

Businesses must expect customer payments not just from cash-only channels. With payments from cash-only methods causing unnecessary delays in payment collection, businesses must consider accepting credit cards and allowing customers over automatic payments. With signed credit card authorization form for charging their card with the amount due on a certain schedule will increase the cash flow. Encouraging online payments can also be fruitful but irrespective of the methods, it is critical to include payment terms, due dates & all official communications in invoices. 

9. Dropping Bad Clients

Default or late-paying customers is not a good client and should be red-flagged. Unresponsive, inconsistent, and consistent late-paying clients must be avoided for future business deals as wasting time and effort over such individuals is a waste. Dropping them off the business list is considered to be advisable. If found clients, who pay late even after offering outstanding services, they must also be avoided. Ample time and effort must be allocated for clients who can be diverted in obtaining newer clients, giving newer businesses. 

10. Making the Most out of Existing In-house teams

The efficiency of the in-house accounting department and the accounting systems must be on the check. Application of ERP or accounting system by incorporating appropriate ERP or accounting system for accounts receivable management with result-oriented accounts receivable tools will manage invoice collection processes. Rather than spending a considerable amount of time looking for information to prepare for client calls, time to time updating spreadsheets, solving data errors, and prioritizing activities based on aging accounts and other non-value-added activities, businesses must ensure to maintain smooth approaches in client communication, settling of disputes and other critical activities. 

Using the right tools will automate accounts receivable operations and centralize the receivable data for helping collectors focus on the companies with improved performance and cutting down transition costs. Automating such processes can enable currents staff to do more and also cut down the accounts receivable staff requirements to the minimum.

11. Revoke Credit Terms

In stringent financial conditions, businesses must tighten down their payment procedures for payment collection. Switching to self-preservation modes by requiring clients to flow through credit cards for all their purchases and making capable of sales reps granting trade credit will improve the overall AR process significantly. Shifting from longer payment terms to smaller ones also does the trick. Revoking credit terms is certainly a powerful way to get back customers’ attention and eliminate the risks related to the payment structure. Analyzing the payment trends of customer bases and immediate payments along with proper client communication with a smooth internal structure will also work alongside the plan.  

12. Using Business Credit Card

Using business credit cards will help to spread out expenses, giving them the buffer they require for handling lagging AR processes. A credit card could not only give a full month of cushion but also allows payment of invoices based on cycle resets. With higher limits than personal credit cards, business credit cards can enjoy larger funds on demand. Qualifying for a credit card isn’t much and on-time and consistent payments will help to build up debt. 

13. Factor or finance AR invoices

AR factoring is a fast source of cash and it entails selling outstanding AR to factor, paying back a percentage of the total value of those invoices. Collecting customer payments, factors can damage customer relationships but could benefit from a factoring fee, usually 1-5 % of the whole invoice value. Pairing AR factoring with credit insurance reimburses companies for invoices they are not sure about collecting allowing businesses to enjoy the capital it requires right away while cutting down all risks related to all risks of getting the whole payment. 

14. Renegotiation with Suppliers

Problematic AP and AR terms must be better aligned with all best efforts and skills. Identifying suppliers who are open to longer terms by the explanation of industry standards and other conditions will help clients with more time to pay. Remaining steady and increase for certain vendors during negative scenarios and extending terms will be a good strategy. Negotiating longer terms with suppliers and vendors, early paying customers, must be given keen importance. Making sure credit bureaus know about any changes to terms and informing clients of new payment agreements will also turn good. 

All businesses will have accounts receivable policies or when to bill, how much to bill, and when to collect. But most of them fail to execute all such policies effectively, but the best practices we have organized above will ensure businesses solve Accounts Receivable challenges. Following these steps will eliminate outstanding accounts receivables, smooth cash flows, and availability of capital for investment in growth opportunities. OURS GLOBAL’s Accounts Receivable Outsourcing Services helps businesses to solve unintended consequences of follow-ups on overdue invoices, writing off overdue invoices as bad debt, bill/invoice errors, and incorrect payment allocation. Get in touch with us and kickstart the cash flow, faster production, attainment of revenue targets, and negative business results.  

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