Introduction
Businesses today need the right financial data to thrive in today’s competitive environment. But with the increasing rate of expansion, collection teams in mid-sized businesses realize the pressure of keeping large volumes of data on spreadsheets to keep track of aging receivables. With limited insight into financial data, your company can be at risk of increased outstanding receivables. As per Pymnts, 67.9% of firms that receive more than half of their payments late experience cash-flow problems.
We know that there’s no ‘one-size-fits-all’ policy when it comes to dealing with customers. As a finance professional, leveraging financial data such as payment behavior, profitability, and failure risk will come in handy when it comes to driving top-line growth.
Here’s where customer segmentation helps by categorizing customers into different buckets to reveal areas of risks and opportunities within the account. Identifying, analyzing, and leveraging these measurable data points can help finance professionals handle different customer accounts.
Adaptive Accounts Receivables (AR) automation solutions such as RadiusOne AR Suite can help boost your collections outreach with prioritized worklists and ready-to-use correspondence templates to help secure your bottom line cash.
Customer segmentation is a crucial element in the strategy for proactive collections. Let’s explore the different dimensions of customer segmentation to help you recover more receivables with less operational expenditure, lower Days Sales Outstanding (DSO), and reduce bad debt.
5 Tips for a Successful Customer Segmentation Strategy
1. Define The Mode Of Invoicing
Most companies hold off on taking any proactive measures to collect until the invoice is past due. However, the mode of invoicing is also a critical strategic factor to handle collection efforts. For example, customers relying on paper-invoicing will need proactive invoice delivery since it takes longer to reach them.
There is added concern of the process being error-prone and invoices getting delayed or stuck before reaching the customer. In contrast, with eInvoicing, the process gets a lot more simplified. Customers can get real-time notifications on multiple invoices at their convenience while fast-tracking invoice delivery.
2. Analyze the Payment Methods Used
It’s crucial for businesses to analyze the time lag between initial payment processing and cash posting. For instance, check payments take longer to process and hit the bank. Finance teams can segment the customers who need to be sent reminders earlier to make sure that the payments are being posted on time.
For customers paying with digital payment methods such as ACH, Credit Cards, and wire transfers, the payments are updated in real-time. When it comes to successful collection efforts, efficiency and accuracy run the game. It’s always better if companies receive payments sooner rather than later which can hamper their bottom line.
3. Leverage Past Payment Behaviour
It’s not enough to just have financial data insight, businesses also need to analyze and utilize the payment behaviors of individual customer accounts. Defining the payment trends will be helpful as fast-paying customers would not require as many payment reminders as slow-paying customers. This will help in gaining a better understanding of the priority of customer accounts that collectors need to handle.
4. Risk-based Segmentation
It’s crucial to identify and prioritize high-risk customers to initiate the appropriate correspondence. A proactive vs. reactive approach can readily help finance professionals stay on top of their customers and track outstanding receivables.
Customers can be categorized into different risk buckets based on credit scores and can be contacted before their unpaid invoices pile up on past-due AR. Reducing delinquency in the early stages of collections also helps in decreasing the exposure levels while making sure that customers are paying on time.
5. Analytics and Aging Buckets
Keep track of the current status of outstanding receivables to help collectors ensure that they are within the payment terms. Aging buckets can be formed based on the past due duration of the AR and the risk classes can be classified as low-risk and high-risk accordingly. For example, Past Due 0-30, Past Due 31-60, and Past Due 61-90 days. This will help collectors stay on top of their customer accounts with a prioritized list of whom to call first.
Gaining a better understanding of different customer segments within the database will help businesses achieve improved revenue output with faster collections. With a customer-centric approach, finance teams can re-allocate resources to high-value tasks.
Unlocking Strategic Benefits: How do Adaptive AR Automation Solutions Help?
New-age technological disruptions equip businesses with the power to collect faster by providing a seamless collections experience. Let’s see how these adaptive automation solutions can improve your collection effort to save essential dollar amounts.
- Automated dunning: Automated correspondence with ready-to-use templates can help in handling large volumes of collectibles. With improved customer engagement, mass correspondence can also help in enhancing a collector’s productivity and process efficiency.
- Frictionless e-payments: Scalable AR automation solutions such as RadiusOne AR provide multiple payment options such as ACH and Credit Cards, making it easier for customers to pay in their preferred mode of payment. Furthermore, new-age self-service portals can help customers to easily access and manage their invoice and account statements, all through a single self-administered portal. This can help in reducing the collector’s workload by optimizing and automating the collections management process.
The Takeaway
Automated technologies can provide improved data analytics that can streamline the collection management process, improve recovery rates, and customer experience. With the ability to tap into, utilize, and analyze data by leveraging technology, businesses are showing huge implications for long-lasting growth.
Take a few minutes to help us understand the problems you face with AR:
- Do you face delays in sending out invoices?
- How robust is your customer onboarding mechanism?
- Do your finance staff spend a lot of time chasing faulty accounts without an idea about the aging or amount of exposure?
- What area of your accounts receivables do you think needs improvement?
Check out this blog on How to Improve Collections and Dunning with Automation
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