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How To Efficiently Manage Your Company’s Account Receivables

22 November, 2021
4 mins read
Brett Johnson, AVP, Global Enablement
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What you'll learn

  • Why effective accounts receivable management is important for your business.
  • Real-life challenges faced by the enterprises while managing their accounts receivable.
  • Best practices to ensure effective accounts receivable management and the role of automation in it.
Why is Accounts Receivable Management Important?
Accounts Receivable Management Challenges: A Deep Dive into Common Challenges Encountered by Organizations
Best Practices to Ensure Effective Accounts Receivable Management
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Why is Accounts Receivable Management Important?

“According to a survey by Tsico, on an average companies write off 1.5% of their receivables as bad debt and 93% of businesses experience late payments from customers.” It’s giving a source to TSICO now in place of YayPay. However, organizations are trying to alter this trend and curb their bad-debt write-offs with the help of working capital management.
That’s why, in recent times, global enterprises have become more vigilant about monitoring their cash inflows and outflows.
A balanced focus on payables and receivables ensures healthy working capital management. Here’s where the black spot remains: finance teams tend to focus and optimize their payables while receivables management takes a back seat. However, by changing this approach, with an efficient accounts receivable management process, organizations would be able to reduce bad debt.
Therefore, it is crucial for enterprises to figure out a consistent strategy to manage accounts receivable. In this blog, we will walk you through what could be some of the best practices that you can leverage for your accounts receivable management process.

Accounts Receivable Management Challenges: A Deep Dive into Common Challenges Encountered by Organizations

The larger the organization, the more complex accounts receivable management becomes. For a global enterprise, with business units across the globe and data scattered across every business unit, accounts receivables management becomes difficult.
For instance, organizations can experience multiple challenges including error-prone receivables management, and manual & time-consuming reporting. Let’s take a closer look at some of the commonly-encountered challenges:

  • Delayed Collection of Outstanding Invoices

    With a huge customer pool, your collections analysts might find it difficult to prioritize the critical ones. Due to manual prioritization, they might reach out to a low-risk customer who would have paid without a reminder, while the high-risk customer is left unattended. This leads to a rise in Days Sales Outstanding(DSO).

  • Delayed Invoicing Leading to Late Payments

    A lot of customers pay their invoices every month at regular intervals. For instance, some customers never pay during the financial close, while some prefer making payments at the beginning, middle, or end of the month. However, are your billing & invoicing teams able to keep up with the diverse customer invoicing and payment cycles? Delayed invoicing might directly impact a subsequent delay in receiving payments.

  • Time-Consuming Cash Application

    Matching incoming payments to invoices can be one of the most error-prone and time-consuming processes in accounts receivables management. Cash application analysts spend one-third of their time aggregating remittance advice, matching invoices and coding deductions. They frequently encounter exceptions such as missing remittances, or the inability to match payments with remittances. Manual exception handling slows down the cash posting process.

  • Lack of Customization in Invoices Impacting Customer Experience

    Customers have diverse invoicing needs. They might have specific needs regarding the number of fields shown on the invoice or the number of line items added. Imagine manually creating customized invoices for 100+ customers – it becomes a nightmare indeed!

  • Invoices Being Delivered to the Wrong Recipient
    An enterprise customer might have multiple A/P touchpoints. Delivering the invoice to the wrong email address or someone from a different department might create confusion at the end of the payable, resulting in a payment delay.
  • Lack of Real-Time Risk Assessment with Periodic Credit Reviews
    The creditworthiness of customers might fluctuate often, and it is the responsibility of the credit management team to regularly monitor the credit health of their portfolios. However, with thousands of customer portfolios across the globe, it becomes difficult for the credit team to regularly monitor the credit risk. As a result, they end up reviewing the customers quarterly, half-yearly or even annually. These periodic reviews do not always provide the latest insights on the credit profile of the customer, and thus the credit teams do not possess real-time insights on credit risk behavior of a customer.

Best Practices to Ensure Effective Accounts Receivable Management

Upon identifying the various leaks in order to cash process, senior finance and A/R leaders are choosing to embrace A/R automation to influence efficient accounts receivable management. In a survey carried out during a CFO Virtual Agenda, 30% of senior finance executives have identified accounts receivable automation as a necessity.

1. Dynamically Prioritize Collector’s Worklist to Recover Faster

While prioritizing customers for collections, collectors should consider multiple parameters such as aging analysis, payment behavior, credit risk class, payment commitment analysis. They should proactively monitor whether these parameters are fluctuating or not. In case of a fluctuation, if it generates a red flag, that customer should be prioritized. To execute this dynamic prioritization, collectors can take the help of an AI-based Collections Cloud. Analysts can build a prioritised worklist based on predicted payment dates of your customers, customise the collection strategies with AI recommendations thereby optimising working capital and improving DSO.

2. Enable Same-Day Cash Posting

Same-day cash application should be a major focus area for your cash application team. If cash is applied on-time, the senior A/R leaders would have better visibility on the cash inflows. To ensure same-day cash posting, cash application analysts should figure out how to deprioritize manual tasks such as remittance gathering, deduction coding. With an automated cash application process, cash application teams can auto-match open invoices to incoming payments. With automated invoice matching and deduction coding, your analysts can achieve same-day, accurate cash posting. AI-based Cash Application Cloud helps analysts resolve exceptions faster with intelligent recommendations. For instance, eliminating noise from check images and predicting line-item level data from images to suggest reference numbers.

3. Improved Customer Experience with Customized Invoice Delivery

Invoicing teams should cater to the customer’s invoicing or billing preferences. They should customize invoices for every customer or schedule invoice delivery based on the customer’s preferred schedule. With automation, invoicing teams can easily generate customized invoices based on the customer’s brand guidelines or preferences, and they can also automate invoicing via emails, fax, or invoices can be pushed to A/P portals and accounting systems.

4. Regularly Review At-Risk Customers to Mitigate Risks

Credit teams should increase their frequency of evaluating the credit risk of their customer portfolios. This will ensure constant monitoring of fluctuations in the customer’s credit profile. With Real-time credit risk monitoring, credit teams can track frequent changes in customer’s credit risk and payment behaviors. With real-time credit risk alerts, credit analysts can revise the credit limits and rescore their customers. This way, credit teams can mitigate portfolio risks in real-time and reduce bad debt.
Accounts receivable management software will not only ensure end-to-end automation in A/R but also enable senior finance leaders to make informed decisions based on the intuitive analytics and reporting dashboards. With user-friendly, real-time reporting, your senior management can make data-driven decisions by analyzing the global process health metrics(DSO, ADD) or even deep diving to understand individual analysts’ performance.
HighRadius Accounts Receivable Software caters to the unique business requirements of customers across the globe. With a value-based pricing model, the solution is configurable based on the challenges faced by the receivables team. To identify leaks in your O2C process or to get your accounts receivable automation-related questions answered, schedule a 25min complimentary A/R assessment session with our Receivables Transformation Consultant. Kickstart your A/R automation today!

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HighRadius Integrated Receivables Software Platform is the world’s only end-to-end accounts receivable software platform to lower DSO and bad-debt, automate cash posting, speed-up collections, and dispute resolution, and improve team productivity. It leverages RivanaTM Artificial Intelligence for Accounts Receivable to convert receivables faster and more effectively by using machine learning for accurate decision making across both credit and receivable processes and also enables suppliers to digitally connect with buyers via the radiusOneTM network, closing the loop from the supplier accounts receivable process to the buyer accounts payable process. Integrated Receivables have been divided into 6 distinct applications: Credit Software, EIPP Software, Cash Application Software, Deductions Software, Collections Software, and ERP Payment Gateway – covering the entire gamut of credit-to-cash.

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