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10 Tips for Collecting Accounts Receivable in the Modern Day

20 May, 2022
4min read
Patrick Petti, AVP, Value Optimization
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What you'll learn

  • 37% of finance leaders feel sending invoicing immediately and doing better customer credit checks is key to improving cash flow
  • Centralized data repositories and real-time analytics tools help improve collections efficiency
  • Your collections activity is a customer touchpoint that you should utilize to enhance client experiences
Accounts receivable collection tips to boost cash flow
From collections to customer service: The way forward
Next Steps: Choose the right solutions to improve accounts receivable collections
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It is discomfiting to remind somebody about the payment they owe to you or your business. And it becomes even more discomfiting when you know that you’ll have to see them again for more sales.

That’s the catch-22 situation that collectors across industries face. How to meet their payment collection targets while not damaging the business relationship and their personal reputations?

Collectors use a combination of channels including emails, phone calls, and third-party agencies to ensure that payments are collected against all open invoices. Today, technology solutions such as collections worklist prioritization tools help collectors make the right decisions when identifying and reaching out to these different customer segments. Train your team on negotiation skills, collection policies, and other best practices to make collecting accounts receivables less taxing.

In this article, we look at some tips for collecting accounts receivables (AR). We’ll also show you how our collections app can be your collector’s best friend!

Accounts receivable collection tips to boost cash flow

Accounts receivable software makes collections a less mundane and tedious activity. In fact, it enables you to make the right decisions around whom to talk to first, how to talk, and what to talk in collections calls.

Here’re some new-age tactics that help in collecting accounts receivables faster.

Use data effectively

Information is the biggest asset in the digital age. Having all information about customers, their payment statuses and trends, and financial health is important to ensure successful payment collection. Having accurate customer data at your fingertips ensures successful client conversation devoid of any confusion or misleading info. Accounts receivable automation software helps you store all customer information in one place as a single source of truth. You can search the records for individual customers and filter by payment status, purchase details, etc. when contacting them for payment collections.

Be flexible in your payment terms

Many customers fail to pay because of cash woes at their end – sales might be bad or it might be a dull season. Check if restructuring their payment plan (e.g. making it Net45 instead of Net30) will help them. Or ask if they’d be able to make part payments or split payments. Your goal should be to get your due amount without affecting customer relationships. Putting too much pressure on a financially stressed customer to pay the whole amount immediately may even lead them to become delinquent, which is not in your best interests.

Send invoice immediately

Receivable collections is interrelated with other AR functions like invoicing and cash application. For faster collections, you must send customers invoices as quickly as possible. Also, make sure that the invoices are error-free. Wrong invoices delay collections. Adding payment links within the invoices helps make collecting accounts receivable faster. Our survey of over 150 mid-market CFOs revealed that sending invoices immediately is the measure that most CFOs (37%) plan to take to improve cash flows.

Send reminders well before the due date

A large percentage of invoices are delayed because customers inadvertently miss the due dates. Sending reminder emails and push notifications on their AP portal can help customers remember to make payments on time. Use an AR automation software to send reminders to clients at predefined intervals (e.g. a week before the invoice is due, 1-3 days before the due date, etc.) Depending on your relationship with the client and the industry and geography that you operate in, you can also call the customer quickly for a friendly reminder. Reminder and dunning emails with payment links embedded in them are known to work better in collecting accounts receivables.

Check out RadiusOne eInvoicing app to embed payment links within your invoices and dunning emails.

Manage credit risk

Payment collection is closely associated with customer credit risk as well. The higher the credit risk score of a customer, the more difficult it is likely to collect payments from them and vice-versa. Along with sending invoices immediately, 37% of respondents in our AR dashboard and prioritize your worklists is important to ensure timely collections. Our AI-assistant Freeda can help you prioritize accounts and improve your AR operations and collections.

Follow standard procedures

Having a written document that outlines the steps involved in collecting accounts receivable will help your collectors follow company-wide standard procedures when reaching out to clients for payments. This document can outline when to send a dunning email, when to reach out to customers by call, and how to start a collections conversation. It may also include templates they can use for their emails and calls. Having a documented collection procedure helps train and onboard new staff easily.

Train your employees

Collecting accounts receivable is no easy job. You have to walk the tightrope between maintaining customer relationships and ensuring cash flow. Training your employees on various skills such as negotiation, clear communication, ethics, and persuasion becomes important to ensure strong collections and customer relationships.

Offer a good customer experience

Collections activities do not mean using threatening language on your customers. Collectors should be able to empathize and have polite conversations with clients. Understanding the reasons why customers aren’t able to pay on time (e.g. insufficient cash flow at their end, problems with the bank, issues with the product, etc.) will help build strong and long-lasting customer relationships. At the same time, collectors also need to deal sternly with customers who give unreasonable excuses. Even then, ensure that you do not jeopardize relationships or hurt the reputation of your business.

Have the right tools

Empowering your AR team with the right tech tools is crucial to help them complete their tasks efficiently. AR software helps your team manage invoicing, cash application, credit risk, and collections electronically. It improves collaboration between teams and automates mundane tasks such as invoice preparation, report generation, etc. It enables your staff to focus on higher-end activities such as building strong customer relationships, solving complex disputes, and identifying trends and patterns in customer behavior.

From collections to customer service: The way forward

To be a successful organization today, you need to consider your collections activity as a customer service measure rather than as a means of customer intimidation. Studies show that it is 5x more expensive to acquire a new customer than it is to retain an existing one.

With choices in the market galore, you need to ensure that your teams, including finance and AR teams, provide exceptional customer experience at every touchpoint including when seeking payments.

According to our report, 52% of finance leaders measure the ROI of their digital transformation initiatives by tracking improvements in customer service metrics. For 86% of CFOs, implementing AR automation is important to keep pace with competitors. Falling behind in adopting AR technology leads to customer frustration (42%) and competitors providing superior customer experiences (41%).

Next Steps: Choose the right solutions to improve accounts receivable collections

Investing in an AR solution gives you the necessary data visibility and features such as worklist prioritization, in-app VoIP calling, and automated dunning to improve receivables collections. AR solutions work in tandem with your other systems such as ERP software or accounting system to create and send invoices, apply incoming cash to the right invoices, and track key metrics such as days sales outstanding (DSO), accounts receivable turnover ratio (ART), days deduction outstanding (DDO), receivables at risk, and collections effectiveness index (CEI).

We offer affordable, easy-to-implement, and intelligent AR solutions for businesses to meet their receivable goals. Clients such as ShurTech have seen a 75% improvement in their collection metrics (DSO) post implementation of our solution. Take a demo today to see how our solution works.

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