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Top 4 Accounts Receivable Challenges and How to Overcome Them

Proper accounts receivable management is vital if you want to operate a healthy business. It doesn’t matter how much in sales you generate if you never collect on your invoices, or if you keep losing vital invoices you are meant to collect on. While it may not be the most exciting part of your business, good accounts receivable (A/R) practices will make your other business operations much smoother.

Do you need help overcoming accounts receivable challenges in your company? In today’s guide, we’ll be discussing the top accounts receivable management problems we see and solutions to help you overcome these challenges.

Challenge 1: Late payments

One of the biggest problems for accounts receivable teams is how to address late and overdue payments. In an ideal world, everyone would pay your company what you’re owed for goods and services rendered. Unfortunately, some consumers do not meet their payment deadlines, and encouraging them to make their payments should be a top priority for your team.

A few accounts receivable solutions to this challenge include:

  • Remind the customer that payment is due before the invoice due date. Not everyone is organized and you would be surprised how effective sending a reminder a few days before payment is due is at increasing timely payments.
  • Contact the customer as soon as payment is late. If a payment is late, contact the customer directly in a friendly but direct manner, and attempt to find out why their payment is late. More often than not, you can reach an agreement with a customer, or may even discover that they already made a payment that went unnoticed by your accounts receivable team.
  • Send regular invoice reminders post due-date. Once a payment is past due, sending regular invoice reminders to the customer can help them remember that they need to pay you. While you should be careful to avoid spamming the customer, a reminder every few days should be enough to make it clear to the customer they need to pay off their invoice.
  • Make payment easy. Some customers might not have paid off their invoice because they are unable to use the current payment methods provided by your company. Work with the customer and see if you can come up with an alternative payment method. While this may result in small transaction fees or tracking difficulties, at least you will be collecting the money that is owed for goods and services rendered. Another way to address this is to use a payment portal with many different payment options, allowing the customer to choose the payment method most comfortable for them without requiring any extra work from you. 

Challenge 2: Customer payment management

The vast majority of your customers will likely do their best to make their payments on time. However, do you still find that your days outstanding, or DSO, is on the rise? One A/R processing challenge that often leads to higher DSO is when customers find it hard or inconvenient to make a payment. If a customer struggles enough, they may just give up on trying to pay the invoice rather than deal with the cumbersome system in place.

There can be a number of reasons for this challenge, with solutions including:

  • Make sure your customers know where to pay their invoice. Many customers fail to make their payments because they don’t know where they’re supposed to go to pay their invoice. Consider sending them an email with instructions, or print payment instructions on the invoice itself to make it easier for the customer.
  • Have a payment portal. The best way to improve the customer payment experience is to have a dedicated payment portal. This may include a website, a phone application, or some other software that allows them to pay their invoices off directly. Providing a history of invoices and past payments will also improve the customer experience.
  • Provide itemized invoices. Many customers may not want to pay off their invoices immediately if they’re confused by what they’re being charged for. Provide an itemized invoice for the customer that has a short description of each individual product purchased or service provided. Avoid shorthand or product codes that the customer wouldn’t understand. If there are any discrepancies, they’ll be encouraged to reach out to your company to discuss the exact items they disagree about. 

Challenge 3: Time management

There are only so many work hours in the day, and the more time you spend dealing with accounts receivable tasks the less time you have to spend on other important business operations. While you can always hire more staff members to deal with accounts receivable issues, doing so eats into your bottom line and may feel like a waste of human resources to chase small accounts.

To improve your AR time management, we suggest the following solutions:

  • Simplify the accounts receivable process. The more steps there are in a process, be it for the customer or your team, the longer it takes to get the task done. Simplify the process as much as possible. Apply the other suggestions in this article to make payment easier, and try to keep invoices and other payment details in one place so your accounts receivable team can save time when reviewing cash flow.
  • Introduce safeguards to reduce errors. Nothing wastes more time for an accounts receivable team then trying to track down the one mistaken invoice that leads to an accounting failure. Prevent errors from occuring by introducing safeguards into the accounts receivable process. This may include standardized invoice pricing, refusing to allow invoices to be made if the numbers do not align, or having more than one set of eyes verify particular orders and invoices. Preventing problems is almost universally quicker than the time that gets wasted on trying to solve problems.
  • Rely on automation software to perform simple tasks. The best time solution is to consider automation software. Accounts receivable automation best practices consists of performing simple tasks automatically that often eat up an employee’s time. This includes sending out invoice payment reminders automatically, organizing invoices and separating what’s paid from what isn’t, double checking that the numbers all match up, and more. Use automation to free your employees up to handle more complicated tasks.

Challenge 4: Data management

The more your company grows, the more data you have to carefully manage. This includes paid and unpaid invoices, customer profiles tracking their payment history, addresses, goods and services provided, along with many other key data details required to operate a business. Before long, this can become an all consuming task that requires multiple dedicated employees to stay on top of.

A few data management accounts receivable solutions include:

  • Consolidate your platform. Data management can get particularly unruly if you are storing your accounts receivable data in multiple places. Try to consolidate your data as much as possible into one particular book, service, or A/R solution. While it is wise to keep backups of your A/R data, make sure everyone is using the same service or solution when performing accounts receivable work.
  • Universalize your accounts receivable processes. Similarly, make sure all of your employees and customers are using the same accounts receivable processes as much as possible. Make sure that customer profiles, invoices, payments, and other key procedures are performed in the same way and contain the same information. The more uniform the process is, the easier it is to scan your data and discover what went wrong when something is out of step with everything else.
  • Consider an automated accounts receivable solution. Data management is one of the areas where automated accounts receivable platforms excel. They do the hard work of consolidating vast amounts of accounts receivable information for you. Need to find unpaid or late invoices? Unsure if you properly generated an invoice for a customer? Are the numbers not matching up as you review your accounts receivable payments and receipts? These are just a few things that an automated AR platform can do with ease.
  • Create a dashboard that updates itself and gives a high-level overview of the KPIs that are important to you. It is impossible to keep track of what is happening with every customer. But a dashboard that collects and processes data for you will alert you to where the problems are so that you and your team can focus on the mission-critial issues that are having the largest impact on your bottom line. 

Overcome your accounts receivable challenges with Gaviti

Whether you need to streamline your cash flow, simplify customer payments, or get statistical analysis to find out where you can improve your accounts receivable process, Gaviti can help. Our A/R collections and management automation is designed to optimize accounts receivable management for all types of businesses, no matter their size.

Our software platform is packed with a host of features, including solutions to many of the challenges we described above in this article. Automate the collection process and messaging customers when they are coming up or overdue on payments. Discover where your accounts receivable team can improve with actionable insights and suggestions. Our platform even studies customer behavior, providing real time analysis to help you plan your future business.

Gaviti wants to help you and your accounts receivable team, so contact us today if you have any questions. Want to see if we would be a good fit for your company? You can book a demo with us to see the Gaviti platform in action, including tutorials on how to use the features you care about the most. If you need an effective platform to overcome your accounts receivable challenges, we hope you’ll consider reaching out to us at Gaviti.

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