Essential Steps To Become A Blue-Chip A/R Analyst

At times, poorly structured A/R processes and policies may have unintended consequences on the overall revenue stream of your business. Take a look at these 7 strategies to reduce A/R operating costs to strengthen your working capital.

1. Optimized Resource Utilization

Challenge

• In most mid-sized businesses, FTEs are involved in simultaneous operational processes like cash reconciliation, collections, and dispute resolution. This can create a bottleneck that affects the overall A/R operational efficiency.
• Moreover, as businesses grow, the scale of operations and transactions also increases, which has a direct impact on net resources required to get the job done. Your revenue might be growing, but at the same time, operational resource requirements could be leaking dollars.

Cost Resolution Measures and Benefits

• Identifying clerical tasks and procedures that can be digitized & eliminate the need for manual intervention.
• Minimize business disruption where FTEs could focus on high-priority tasks leading to better business performance and cost-savings.

2. Cutting Down on Bank Integration Costs

Challenge

• Bank lockboxes come with a monthly transaction fee. Moreover, if you opt for a bank key-in service for capturing remittances, you incur additional fees, depending on the number of characters. The data captured by the bank has limited information and hinders the successful reconciliation of payments with the open invoices. Furthermore, bank key-in is manual, time-intensive, and error-prone, which delays the cash reconciliation process.
• Traditional cash application includes manual invoice-remittance matching and posting into the ERP. This results in a longer time-to-cash and a bad-cash scenario.

Cost Resolution Measures and Benefits

• Eliminate the need for bank key-in with a technology-enabled solution such as Remote Deposit Capture to save on key-in costs.
• Digital payments reduce the concerns of mail floats, that is the time it takes for a check to be processed and deposited into the business account. This helps in a faster cash conversion cycle and eliminates the need for lockboxes ( used for check payments ).
• Businesses can opt for solutions providing an easy payment trail as compared to manually going through different sources (emails, vendor portals, and checks) to gather remittance information.

3. Cutting Down on Invoicing Costs

Challenge

• According to a research by Levvel, the average cost to process a single paper-invoice can reach up to $15, which affects the overall revenue stream.
• Businesses following the traditional method of invoicing need to manually enter the incoming invoice data while sorting them into different categories.
• Moreover, paper-based invoices involve further expenses to print and then mail or fax the invoice.

Cost Resolution Measures and Benefits

• Digital payment methods like ACH, Credit Cards, Wire, & Payment Gateways don’t require manual reconciliation efforts on the A/R side.
• Faster and automated invoice delivery through email or web-portals helps in potential savings by reducing the cost per invoice.

4. Cutting Down on Payment Processing Costs

Challenge

• Outdated paper-based systems require manual processing that is error-prone and costly.
• Decoupled payments take a lot of time to be reconciled with the remittance information.
• With fewer payment methods available, customers are more likely to not pay on time, which affects the cash inflow.

Cost Resolution Measures and Benefits

• Remote Deposit Capture can be used to scan large batches of check payments and send the scanned image directly to the bank. This helps in cutting down the costs linked with manual handling and transportation of checks to the bank.
• The use of payment gateways can allow customers to pay for multiple invoices at the same time. This helps in eliminating the need for manually reconciling payments and gives better control of the cash inflow.

5. Handling Compliance & Security Costs for Digital Payments

Challenge

• The integration of digital payments can prove to be expensive when it comes to compliance and security costs to avoid delinquencies.
• In cases where businesses choose not to adopt PCI compliance, the merchant service provider may ask for non-compliance fees.

Cost Resolution Measures and Benefits

• Businesses should review the PCI compliance fees that some merchant service providers charge.
• Opting for an all-round solution could help in lowering overhead costs.

6. Cutting Down on Credit Integration Costs

Challenge

• Individual subscriptions to credit agencies may include additional fees depending on the scope and coverage of individual reports.

Cost Resolution Measures and Benefits

• Opting for a solution which has in-built integration with numerous credit agencies without any individual subscription fee may help businesses save a lot on credit processing.

7. Cutting Down on Paper Costs for Back-Up Documentation

Challenge

• Many businesses end up taking the paper-based route for back-up documentation. This adds to the infrastructure costs for managing such a large volume of documents.
• Lack of visibility in keeping track of customer data, late payments, credit limit, and payment terms can lead to excessive bad-debt write-offs.

Cost Resolution Measures and Benefits

• Businesses can leverage digitization to stay on top of SOX compliance with reduced complexity, a better understanding of operations, and cost-savings.
• With a central repository of customer data, businesses can retrieve all the essential customer information like payment history and invoice data along with payment commitments.

In the absence of a proactive approach to manage or reduce operational costs, your business may be at the risk of being left behind. With proper caution and evaluated steps, you can certainly get started with targeting the critical areas for reducing operating costs involved in A/R processes. The results speak for themselves with streamlined business processes, improved productivity, and better working capital reserves.