Bob has recently joined a mid-market firm as accounts receivable (AR) executive. But his work has not been as easy as he expected it to be. Over an evening drink, Bob talks to his friend Marie, an ERP consultant, about his challenges.
Bob: “Hey Marie, I am having a tough time at work. I am always chasing customers for payments. They never want to pay. And I’ve to always remind them of their dues.”
Marie (looking thoughtful): “Hmm.”
Bob: “And then there’s so much paperwork. Matching million-dollar figures from tiny payment receipts with the accounting books, matching invoices and the remittance data with client accounts, and so much more. Oh gosh! My eyes and headache from doing this manually.”
Marie: “Why don’t you talk to your boss, the CFO, about it? Did you say your company uses NetSuite for enterprise resource planning (ERP)?”
Marie: “NetSuite has many built-in AR workflows to ease your invoicing and payment collections. Additionally, it integrates with third-party AR automation solutions like RadiusOne. AR automation apps offer you a smart and intelligent interface to work with. In fact, you can also avoid some common accounts receivable mistakes using RadiusOne and NetSuite.”
Bob: “That’s great! Tell me more about the common AR mistakes and how I can avoid them.”
Marie: “Sure, Bob. Let’s talk about the six common mistakes AR executives make and how to tackle them.”
6 Common accounts receivable mistakes to avoid
AR executives often assume that clients will remember the amounts they have to pay and make payments on time. This makes them reluctant to send reminders to clients about upcoming payment due dates. They are sometimes hesitant even to contact customers for overdue payments because of fear of losing the client. This delay results in delinquent accounts turning to bad debt and write-offs, resulting in a loss of revenue for your business.
What should you do? Send reminders to clients irrespective of whether they’ve always paid on time or usually pay a week after the due date. Prepare a schedule so that you know when to send customers reminder emails or letters. Reminders provide clients the message that you’re tracking their accounts and they can expect a call from you anytime enquiring about the payment status.
How NetSuite helps: You can schedule automatic reminders using a SuiteApp extension in NetSuite. Build custom workflows to enable the system to send reminder emails a few days (e.g. one week) before the due date and at specific intervals of time (e.g.weekly) after the due date, till full payment is registered. This saves you time and effort. You can also attach the respective invoices and other documents to the reminder emails.
You may be tempted to help the sales teams close a deal by giving clients extended credit limits without customer due diligence. This can become an issue when the clients don’t pay and you have to ultimately write off the overdue amount.
What should you do? A well-defined credit limit strategy that minimizes your financial risk is crucial to ensure hassle-free cashflows. You must check the financial health and creditworthiness of clients before offering them lenient payment terms. You can opt to have different credit limit strategies for different clients based on their payment history and financial health.
How NetSuite helps: NetSuite and add-on AR apps such as RadiusOne can pull credit risk data including creditworthiness scores from agencies such as Dun & Bradstreet to build models that predict a customer’s default probability. You can also build custom credit risk models to calculate optimal credit limit terms for different customers.
B2B payments are no longer limited to cash or check transactions alone. Many businesses today prefer digital payment options such as wire transfers, PayPal, G-Pay, or other apps such as Venmo or Square. According to a survey, 60% of businesses are likely to use electronic payments for a majority of their B2B payments. If your business fails to offer customers their preferred payment format, chances are high that they might defer making payments.
What should you do? Expand the payment options you provide your clients. Partner with popular online payment companies such as Venmo, Square, and PayPal to enable multiple payment processing options. Ensure that all the payment methods are PCI-DSS compliant.
How NetSuite helps: NetSuite allows you to capture payments through multiple means including cash, checks, ACH transfers, and ACSS transfers (for Canadian customers). With AR automation solutions such as RadiusOne, you get additional payment options such as NACH, credit cards, PAD, and PayPal. You can embed payment links in your invoices and dunning emails to prompt customers to pay faster. Customer self-service portals enable clients to make payments anytime using the payment options provided.
Manual methods of accounts receivable management result in inefficient data storage and sharing. It’s difficult to identify and share specific invoice or client details with your team when the AR data is saved in multiple places and in varied formats. Disorganized data also leads to inefficient collections and reconciliation efforts.
What should you do? Invest in an AR automation tool that helps capture data from multiple sources and organizes it in a centralized repository. Ensure that all relevant teams have access to this centralized data source. Use dashboards and reports to get a quick view of key metrics such as days sales outstanding (DSO) and collector effectiveness index (CEI).
How NetSuite helps: NetSuite helps you centralize data and share it across teams. You can add client call notes, contact details, recent developments, etc. to the centralized repository and assign them to the relevant client accounts. You can also view accounts receivable information such as DSO, total outstanding amounts, top 10 customers contributing to receivables, etc. using the dashboard. The dashboard also allows you to drill down to understand client-wise and invoice-wise share of accounts receivables.
Invoicing errors and subsequent disputes are a major reason for payment delays. Invoice mistakes include errors in the dollar amount, quantity of goods, payment due dates, or tax calculation.
What should you do? Ensure that your sales, inventory, and finance teams are on the same page with regard to invoice items such as quantity, rate per item, credit limits, and payment dates. Automate invoicing and tax calculations using AR software.
How NetSuite helps: NetSuite offers billing functionalities via SuiteApp add-ons. These add-on apps help generate custom invoices using pre-defined templates and data captured automatically from different modules such as sales and inventory. You can also manage subscription or recurring billing using the software. The invoices can be delivered via email or to customers’ accounts payable (AP) software. You can also track the delivery status of invoices.
Customers often make part-payments or advance payments depending on their cash position or due to disputes in the goods received or quality concerns. The information about these payments is often spread across multiple channels such as email, customer portals, or bank records. Mapping the payments to the right client accounts and invoices is important to maintain healthy customer relationships. Inaccurate remittance matching also leads to your accounts not tallying and dunning errors.
What should you do? Matching payment receipts with invoices manually is tedious. Automate this function and save the time and efforts of your AR executives. Automated reconciliation features allow AR executives to focus on other tasks such as building credit and collections strategy.
How NetSuite helps: RadiusOne, an AR SuiteApp, helps automate the remittance capture features in NetSuite. Its web parsers can collect payment details from web portals and AP software. The OCR engine scans checks and collects relevant payment data. RadiusOne’s AI-enabled technology allows you to capture remittance data from emails and email attachments as well. Automated invoice matching helps you to match the payment data with the correct invoices and client accounts, and close the invoice in the ERP system.
In addition to avoiding the mistakes that we discussed above, here’re some more tips to help you have strong AR management practices.
1. Comply with debt collection laws: Federal and state laws such as the Fair Debt Collection Practices Act (FDCPA) regulate collection practices. Your company would be vulnerable to legal action if anyone in your organization knowingly or unknowingly violates these laws. Train your collection agents in these laws and keep them abreast of any changes.
2. Explicitly state your payment policies: Many companies shy away from explicitly mentioning their payment policies for fear of losing potential customers. But not mentioning the terms clearly can damage your customer relationships and lead to legal complications. State your payment policies including any late fee or interest charges on your website, payment portal, invoices, and sales orders.
3. Seek professional and technical help when needed: If you aren’t able to manage AR with your current resources, seek help from third-party collection agencies. You could also look at revamping your existing AR technology to make your order-to-cash process more efficient.
4. Have a dispute resolution mechanism in place: While most businesses do not want to consider bad debts or failures as a possibility, it is best to prepare for such instances. Appoint an agency or create a process (agreed to by both parties) to quickly resolve disputes.
Robust accounts receivable management practices are important to ensure adequate working capital and cash availability. Here’re five steps you can take to improve your accounts receivable process.
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The HighRadius RadiusOne AR Suite is a complete accounts receivable solution designed for mid-sized businesses and SMBs to automate eInvoicing, Collections, Cash Reconciliation, and Credit Risk Management to enable faster cash conversion and maximize working capital.
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