Clocking ROI in Accounts Receivables With Automation

Introduction

The entire order-to-cash (O2C) process is more complicated than it looks. Many presume that the complexity is limited to placing the orders and delivering them. But the real trouble comes when you have to collect the payments. The receivables collection process is a challenge for a majority of the small and mid-sized businesses (SMBs). Even if you have vetted your customers well and delivered the invoice correctly, there is no guarantee that the money will flow in smoothly without any hiccups. When A/R processes don’t go as planned, finance executives get concerned about outstanding receivables. Collecting these overdue payments requires additional resources. It also leads to higher operational expenses and increases the time-to-cash, thus affecting your ROI.

Let’s first look at the traditional accounts receivables management methods and how they stop you from achieving a higher ROI.

Traditional Receivables Collection Practices at a Glance

Traditional receivables collection management relies on manual methods to handle the tasks, such as sending correspondences, collecting payments, matching the invoices, and handling disputes. These practices work when you have a small customer base and small-dollar value payments. But they are not feasible when the volume of customers and incoming payments increase.

Let’s look at how your bottom line gets affected at every step in A/R processes.

Data Aggregation

The task of aggregating customer data, payment history, and remittance information is often done manually. Gathering this information manually from multiple sources such as physical records, web portals, emails, and snail mails is time-consuming and requires more resources. Your analysts also get tangled in the manual/clerical tasks and are not able to focus on strategic jobs such as credit and collections.

Collections Dunning

Managing dunning calls and large-scale customer communication can be tricky if you have a huge client base. The manual dunning process is run via email exchanges, snail mails, and telephone calls. With a high volume of customer accounts, collection analysts have to personalize communications manually. This is tedious and causes delays in your workflows. The overhead cost of sending snail mails and making telephone calls also increases the operational expenses.

Managing dunning calls and large-scale customer communication can be tricky if you have a huge client base. The manual dunning process is run via email exchanges, snail mails, and telephone calls. With a high volume of customer accounts, collection analysts have to personalize communications manually. This is tedious and causes delays in your workflows. The overhead cost of sending snail mails and making telephone calls also increases the operational expenses.

Payment Collection

Payment collection is often done manually via cash or check deposits.

a. Checks

Processing a paper check can take 2 to 10 business days.

Factors that affect check processing time and costs include:

• Relationship with the bank
• Applied bank policies
• Physically depositing checks at the bank (by customer)
• Time to mail the checks and track its collection at the company
• Manual invoice matching for check payments
• Cost of stamps and envelopes
• Bank integration costs
• Incidental costs (lost checks, bounced checks, or damaged checks)

b. Cash Deposits

Based on bank policies, processing cash payments can take one to four business days. If you consider other factors such as holidays or system glitches, the overall time-to-cash may further increase. It can also become an inconvenience for your customers.

Invoice Matching

Many businesses match invoices with the respective payments manually. This can work well if you have a small customer base. However, if you have a growing customer base, you will require more time and resources to match the invoices. Manual matching may also lead to errors.

Your communication with other stakeholders and the time to close any open accounts also gets longer when:

• Remittance information is absent, incorrect, or inaccurate
• No remittance data attached with the payment
• Check stubs are not scanned properly by the banks

Dispute Handling

Dispute handling takes longer than usual when communication happens via email and snail mails. At times, it is only after the payment has been processed by the bank that you learn about the short payment or overpayment. In such cases, it becomes more challenging to handle the disputes, and the resolution time increases, thus leading to bad debt.

Now that you know how the traditional methods of receivables management are hampering your ROI, here is what you can do to overcome them.

Adopting Digital Transformation for Receivables Management

Digital receivables management is the new way of managing your AR. Digital AR practices help identify short or overdue payments, minimize days sales outstanding (DSO), and reduce the time-to-cash.

Data Aggregation

Digitizing your A/R data records will make the data easily accessible to your A/R team. Using OCR engines to read information from the check stub, bots to navigate and collect data from web portals, and email parsing engines to extract data from emails can help streamline your A/R processes. Standardizing data collection methods makes workflows smoother and helps avoid unnecessary time wastage. Post digitization, your finance teams can focus on more strategic tasks instead of manual or clerical duties.

Collections Dunning

The entire dunning process can be optimized with the help of digitization. You can eliminate physical forms of dunning such as snail mails and adopt bulk email messaging instead. This will avoid the hassle of manually personalizing emails and help fast-track the dunning process. Automating correspondence for low-risk customers via emails or AP portals with ready-to-use correspondence templates allows you to scale your dunning process. Automation allows you to focus on your at-risk accounts with In-App VOIP calling and instantly log and access notes and call scripts directly through the Collections App. By leveraging these features, you can streamline your collections process and reduce the need for manual intervention, while still maintaining effective communication with low-risk customers.

Payment Collection

Adopting convenient digital payment methods is the need of the hour. It will not only ensure a faster time to cash but will also improve the customer experience. Offering multiple payment options will let your customers make the payments in their preferred formats. Here are some of the digital payment methods that are widely accepted. You can let your customers make payments through their preferred payment format, including ACH, credit card, and debit card with E-Invoicing App. Thus, you can get paid faster in ways that are convenient for your customers.

To learn more about digital payment methods, read this blog on ‘Redefining Accounts Receivables with Digital Payments‘.

Invoice Matching

With automation, the system can easily recognize any exception that comes its way, such as short payments or overpayments, and direct it for exception handling. For full payments, invoices are matched automatically, and directly posted onto the ERP where the accounts can be closed. Thus, with Cash Reconciliation App, you can fast-track your cash accounting and minimize manual intervention by leveraging automated payments and remittance linking, customer identification, and invoice matching.

Dispute Handling

As the Cash Reconciliation App automatically matches the payment with the invoices, any deduction or dispute can be simply triggered by the system when the payments come in. You can also create credit memos and write-offs for incoming disputed payments. For deductions, a relevant code can be assigned to the case for faster deduction identification, resolution, and recovery. It allows you to identify deductions at the source based on short-payments or over-payments to enable early resolution and faster recovery.

Conclusion

Relying on traditional practices can put your AR at risk. For many years, SMBs have failed to make conventional collections practices more efficient. With automation technologies now available at affordable prices, businesses can now take better control of their ROI and grow faster. By using machines to handle the tedious work and letting your analyst focus on more critical tasks, companies can increase their collection volumes and close accounts before they become overdue.

At HighRadius, we have helped companies achieve their target ROI. With the help of RadiusOne AR Suite, mid-sized business owners can now put their A/R on autopilot and overcome the hiccups that negatively impact collections and ROI. RadiusOne enables you to enhance customer satisfaction with streamlined collaboration, minimum ad-hoc touch-points, and self-service portals to make a positive impact on sales and revenue. Moreover, you can maximize your working capital, achieve high ROI gains, and enable hard cost savings by putting your order-to-cash on auto-pilot with RadiusOne. And the cherry on top is that it only takes days to automate your A/R – not months. This software seamlessly connects with NetSuite, Sage Intacct, Microsoft Dynamics, and more. All that has to be done is sign up, plug in your ERP, and go live!