Cash flow is the lifeblood of every business. Yet, many organizations place blind faith in their customers when it comes to accounts receivable. This often leads to cash flow woes and inadequate working capital.
One of the biggest challenges organizations face today is poor payment practices by their customers. And, short payment is one of the most serious issues that the receivables team faces quite frequently.
Short payments occur when customers underpay their invoices, i.e., customers remit less payment than the actual invoice amount. This can happen for a variety of reasons, both legitimate such as excess invoice amount due to invoicing errors or invalid such as deliberate underpayment, leading to an unauthorized deduction.
To tackle the problem of short payments, it is imperative that organizations come up with well thought out strategies. In this article, we look at reasons for short payments as well as suggest best practices that can help tackle this issue.
The reasons why customers make short payments can either be legitimate (e.g. delay in delivering the product/service) or unanticipated (e.g. cash flow problems for the client). Whatever be the reason, short-paid invoices disturb the smooth functioning of your accounts receivable department. Your AR team is compelled to track down and resolve these inconsistencies in customer payments.
Some of the most common reasons that prompt organizations to make short payments include:
Short payments are inevitable. What you can do, however, is to reduce the frequency of partial payments by following certain business best practices. The next section covers a few best practices that you can follow for a smooth and hassle-free deduction process.
Implementing the best practices discussed above and using the right tools to detect and resolve valid deductions will help you reduce the number of short-paid invoices and optimize cash flow.
Autonomous solutions, such as HighRadius’ cloud-based AR solutions will help you standardize your AR process while serving as a platform for cross-departmental collaboration. Our solutions offer features such as automatic deduction correspondence, deduction codes, backup document capture, collaboration channels, and approval workflows to streamline the deductions management process and strengthen customer communications.
Every business is plagued by short-paid invoices, but the better prepared you are to deal with them, the lower your revenue loss will be. A strict check on short-paid invoices is one of the most efficient ways to reduce losses and ensure a steady cash flow and a healthy balance sheet.
HighRadius Integrated Receivables Software Platform is the world’s only end-to-end accounts receivable software platform to lower DSO and bad-debt, automate cash posting, speed-up collections, and dispute resolution, and improve team productivity. It leverages RivanaTM Artificial Intelligence for Accounts Receivable to convert receivables faster and more effectively by using machine learning for accurate decision making across both credit and receivable processes and also enables suppliers to digitally connect with buyers via the radiusOneTM network, closing the loop from the supplier accounts receivable process to the buyer accounts payable process. Integrated Receivables have been divided into 6 distinct applications: Credit Software, EIPP Software, Cash Application Software, Deductions Software, Collections Software, and ERP Payment Gateway – covering the entire gamut of credit-to-cash.