For years, mid-sized businesses have been struggling with issues around AR collections to generate working capital and establish their financial health. In today's digital world, companies are searching for alternate solutions to standardize their AR collections management process and bring about effective productivity./p> Companies are considering strategic initiatives to minimize the Days Sales Outstanding(DSO) and operating costs, secure liquid cash, and support sales by achieving a faster time-to-cash. The biggest bottleneck in the whole AR collections process is the traditional practice of manual collection recovery which is time-consuming and leads to an increase in outstanding receivables.
Source: PYMNTSAt HighRadius, we guide our customers to dive deeper into the collection process and figure out the ways and channels by which companies can establish proactive collection dunning to fast-track recovery.
Companies across the globe follow the traditional route of manually operating their accounts receivables. The conventional accounts receivables process has many loopholes in play, which often leads to issues, some of which are listed down below:
The absence of customer segmentation and prioritization makes it difficult for small and medium businesses (SMBs) to collect their receivables on time. As finance teams struggle to focus on high-risk accounts, there’s a delay in the overall time-to-cash.
With an increase in the volume of customer accounts, managing data, recovering collections, and tracking payments becomes difficult for analysts. With the absence of a centralized repository for managing data, the process gets stalled.
To keep customer satisfaction intact in the whole collection dunning process, every customer is dealt with individually. Most SMBs spend a lot of time on manual correspondence, this includes sending out payment reminders individually. With limited resources and a growing customer base, keeping track of multiple accounts gets difficult.
Data collection and recovery is a critical process that is affected if there is any missing customer document or false invoice information. With human intervention, the whole AR process becomes prone to human errors.
With the advancement in technology, the AR collections management process has evolved over the years. Due to the increasing number of customers and expanding databases, it is difficult for collectors to slice and dice the data, prioritize their tasks, identify customer risk factors, and recover the due amount.
Businesses seek to adopt a proactive approach for AR collections management to ensure a quality customer experience and better team management. Businesses must make sure that the process is carried out in the most optimal method by prioritizing tasks and identifying priority customers.
The importance of treating different customers differently is evident. Every customer is distinct, in terms of financial stature, market trends, business relationships, etc. Thus collectors have to rely on customer segments for customized customer communication.
To make the collection dunning process more efficient, it’s necessary to identify the high-risk customers and prioritizing the tasks based on that. Different rules and strategies defined for the buckets can optimize the collection recovery process.
There are many ways in which you can segment your customers, but the most efficient ones are as follows:
Customers are segmented into groups based on their predicted value to the company. Companies should treat their strategically crucial customers with special care and offer flexible options to them.
Customers are identified and segregated into high-risk and low-risk categories based on their payment behavior.
Customers are segregated based on their credit data and associated risk class. Aging reports play a huge role in identifying the risk category of customers.
Many organizations and businesses have started to opt for adaptive AR automation solutions to achieve a faster time-to-cash.
As per the PYMNTS Study on B2B Payment Innovation Readiness,
“Businesses that rely on manual AR processes have a 30% longer average DSO than firms that rely on medium or high levels of automated processes for collecting receivables.”
Given the pandemic scenario and resultant changes, technology has benefited SMBs to thrive and grow in a volatile economy. With the amalgamation of technology in the AR process, the process is becoming more streamlined and efficient. Let’s see how automated customer segmentation and prioritization help finance teams focus on at-risk customers:
Collections is a strategy-driven process, by focusing more on the performance and functionality of it, companies can manage to minimize DSO and recover payments before they become overdue. For fast payment recovery, the most efficient way is to segregate the customers based on different factors. Businesses need to improve their traditional AR collection process by adapting to the new technologies. Leveraging technologies can make their current process better, more effective, more accurate, and more ideal.
Here’s what you can do next:
To learn more about how to optimize your collections process with the help of digitization, check this blog on Enabling Faster Cash Conversion with AR Automation and Digital Payment.
HighRadius RadiusOne AR Suite provides the complete collections solution to streamline labor-intensive processes by automating correspondence and providing a native dialer while delivering a personalized CX. It is quick to deploy and ready to integrate with ERPs like Oracle NetSuite, Sage Intacct, MS Dynamics, and scales to meet the needs of your order-to-cash process.
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