Imagine you are on a long road trip and you realize that your fuel tank has very little fuel in it and there are no gas stations nearby. Do you think this is an ideal situation? Absolutely not! This metaphor can be related to a company trying to run its operations without adequate working capital.
At HighRadius, mid-market customers reach out to us and request us to help them with their Accounts Receivables-related issues. We always suggest a scalable solution like RadiusOne as the way forward.
The ability to generate working capital defines the financial health of your business irrespective of its size or industry sector. Since healthy cash flow is essential for mid-sized businesses, adopting the most efficient methods to enhance the cash flow becomes imperative. Moreover, with the pandemic, companies have faced cash flow issues, especially in mid-sized businesses. As a result, businesses need to identify new effective ways to get paid faster while maintaining a positive customer experience.
The collections process is the most strategic aspect of the order-to-cash cycle and is prone to many bottlenecks. Due to the absence of standardized AR collections management systems, SMBs (small and medium-sized businesses) often neglect customers who owe them large payments due to other priorities. Moreover, businesses delay cash inflow as they are unable to track open invoices and maintain a healthy Days Sales Outstanding due to lack of visibility.
Businesses want to find effective collections methods and overcome these bottlenecks. Doing this will enable them to get paid faster and identify and resolve potential cash flow issues before they become a problem.
The first step in this direction would be to identify the current payment status of different customers. The focus has to be on customer segmentation and prioritization to ensure better results.
With the rise in customer numbers, it is difficult for SMBs to optimize accounts receivables. The huge variance in cash inflow and outflow will hinder business growth and profits. Moreover, the lack of a single centralized repository of customer information will lead to time spent collaborating rather than on strategic dunning communication.
As an effective measure to speed up the process and cut down on days to collect accounts receivable, companies could group their customers into different categories and modify the dunning approach.
Dividing customers into different brackets and defining strategies for each bracket could enhance the AR collections process and optimize it. By adopting this method, SMBs could easily identify their high-risk customers and prioritize the required task for a better collections recovery. Let’s look at some effective strategies for customer segmentation:
Based on the customer segmentation, analysts can prioritize their tasks to optimize the collections process. Analyzing aging reports, credit scores, risk categories, and dollar value could help analysts recognize the priority accounts to focus on, thus saving resources and time.
Applying different brackets on customer sets based on available data such as invoice details, credit scores, days past due, etc., helps create worklists to highlight the immediate-attention customers to low-risk customers.
However, this task becomes painstaking when businesses deal with a large customer base. SMBs often find it hard to recover the accounts receivables due to higher customer numbers and a small workforce.
To resolve this issue, SMBs can turn to technology to automate their process and increase efficiency. With the intervention of technology and next-gen tools such as artificial intelligence, priority worklists can be automatically created. This could help analysts get started with sending and tracking en masse collections correspondence to scale collections outreach.
The technology will help increase the effectiveness of accounts receivables and reduce operational and functional costs.
Customer segmentation gives SMBs the flexibility to design strategic AR collections recovery schemes to ensure maximum cash conversions. Based on different aging buckets and risk categories, dunning processes can be personalized for effective AR collections management.
For example, a simple automated dunning correspondence could work for low-risk customers; on the other hand, high-risk customers require a more proactive reminder with multiple payment options. Again, if a customers’ due date exceeds more than 60 days, analysts need to have a more aggressive approach with collections calls and repeated follow-ups to avoid loss in revenue.
Prioritizing tasks also plays a crucial role to increase the overall accounts receivable. For example, in the case of two invoices being under the same aging bucket, an analyst can go for the one with a higher dollar value. This ensures that open invoices with a longer period are collected first, to avoid the risk of bad debt.
Most SMBs do not have proper visibility into the daily payment status of all the customers to optimize their collections efforts. Therefore, a simple ready-to-use aging report template could help businesses take control of collections efforts and determine more strategic measures on how to collect accounts receivable faster. While excel-based templates can be of great help, leveraging technology could take businesses a step further in maximizing their cash flow.
Technology will help transform the entire AR collections management process with automation by enabling SMBs to collect money faster while maintaining a positive customer experience. Digitization can enable faster cash conversions and greater accounts receivables. HighRadius’ eInvoicing & Automated Collections Solutions help SMBs automate account prioritization based on industry-specific best practices to improve collector efficiency, minimize bad debt write-offs, and reduce DSO.
With our solutions, SMBs can start on the solution-generated worklist and perform automated dunning via email with easy-to-create correspondence templates. The worklist will contain all the necessary information associated with a particular invoice and the customer along with auto-recommend actions for a faster cash-conversion. Leverage technology today to fast-track your collections process.
Here’s what you can do next:
At HighRadius, we have been helping our mid-market customers in this regard. Want to learn more. You can reach out to us or get a free demo now!
Automate invoicing, collections, deduction, and credit risk management with our AI-powered AR suite and experience enhanced cash flow and lower DSO & bad debtTalk to our experts
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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