Without specialized expertise, a company’s accounts receivable (A/R) department can be a hotbed of inefficiency. Many companies are understaffed and tend to hand off A/R collections functions to employees without the know-how.
In our experience, there are 5 common accounts receivable collection mistakes A/R specialists need to monitor. Getting ahead of these five problems can eliminate the majority of collection inefficiencies you’re experiencing – provided you have the right tools to address each issue as it comes.
One of the most common problems in A/R collections is understaffing. This applies to both small businesses and large enterprises. Team members have too much on their plates and get bogged down in administrative tasks, chasing invoices, and following up with clients.
Unsurprisingly, understaffing increases the chances of errors, as tasks are pushed back or forgotten altogether.
This can create the following issues:
- Decreased cash flow
- Lower overall A/R efficiency
- Lower worker satisfaction
- More time wasted on error-handling
As a first step, we recommend companies explore new solutions to help them fill the gaps, Accounts receivable automation offers companies tools to help them automate key tasks and reduce the amount of manual effort needed to handle collection functions.
2. Taking Any and All Clients
It’s tempting to accept any client that comes your way, particularly for businesses that are eager to grow. But this can be problematic without a formal vetting process in place to ensure each client’s ability to pay.
This is another area where A/R collection automation can pay off. While a collections and management platform can’t do the vetting for you, one of the key benefits of accounts receivable management solutions is how they free up staff to focus on more important efforts. Let the platform handle the rote tasks while your team concentrates on client research and communication.
3. Forgetting to Follow-Up
Another common mistake is failing to follow-up with clients when their payments are overdue. This is a pervasive issue that affects even larger companies, many of which are getting by with small collections teams. This results (again) from employees being overworked and understaffed. It’s easy to forget to follow-up with clients when specialists are busy, but this is one of their most important tasks.
Follow-up emails and reminders are essential tools when it comes to collecting invoices on time, and this is one area where A/R collection automation solutions really shine. Companies can set up custom messaging triggers to automatically send out follow-ups, reminders, or other communications – all through the platform.
4. Underestimating Collections
A common mistake for any company is underrating the importance of their A/R collections department. When budget cuts are needed, accounting departments (like collections) are often the first to be impacted. But timely accounts receivables should be a priority! A poorly functioning collections team directly impacts the business’ bottom line.
Again, the solution here is to appropriately invest in A/R solutions that enable efficient collections. Accounts receivable collection software makes the process easier and efficient.
5. Waiting for The End of The Fiscal Year
Some accounting departments wait until the end of a fiscal year to complete their accounting period. But the same strategy shouldn’t be applied to accounts receivable collection. Waiting until the end of the year to ensure all invoices are paid on time is extremely risky.
A/R collections should be managed throughout the year to ensure a consistent rate of cash flow. There are no platform solutions or special accounts receivable collection techniques needed here; this is simply a matter of staying on top of your game. Don’t wait until you’re crunched by year-end deadlines. Manage your invoices as you go.
Overall, it pays to stay one step ahead of your clients and always be ready to make contact when payments are overdue. Establish rules for how to approach these issues and don’t delay when problems arise.
For help managing these processes in your company, contact Gaviti! Our A/R management expertise may be just the thing you need to eliminate inefficiencies in your collections process.