Top 4 Accounts Receivable Challenges and How to Overcome Them

October 5, 2024

Proper accounts receivable management is vital if you want to operate a healthy business. It doesn’t matter how much revenue you generate if you never collect on your invoices, or if you keep losing vital invoices you are meant to collect on. Optimizing and improving your accounts receivable (A/R) practices will also make your other business operations run much more smoothly.

This post gives you an overview of the common challenges in accounts receivable and effective solutions to help you overcome these challenges.

What are the usual Accounts Receivable Pain Points?

Accounts receivable has been traditionally managed through manual systems, such as a Google or Excel spreadsheet. Yet companies resist the transition to automation for a variety of reasons. It may feel that their A/R team isn’t ready to learn a new solution, or the solutions that exist are limited in their ability to address A/R challenges. They might also realize that these different solutions don’t integrate with existing financial systems, and believe that they will take too long to implement and show results. And of course, the cost of the solutions can seem excessive.

These manual A/R systems present a number of problems:

Inability to scale. As companies acquire more customers, it becomes more challenging to scale these manual methods as they are prone to human error and inaccurate record keeping. These inaccuracies then often lead to increased costs.
Managing customer risk. Manual methods limit the collection and organization of data and ability to deliver insights to the A/R team and its members. That makes it far more difficult to make the right decisions regarding which high-risk collections or high invoice amounts to prioritize and the best strategy for collecting from that customer based on past payment history.
Delivering an excellent customer experience. Poor communication, inconsistent invoicing and collections can make it difficult to maintain customer relationships. A/R teams might overcompensate for late invoices through overly aggressive collections strategies that lead to lost opportunities.

Here are a few of the more specific common accounts receivable challenges and effective solutions to resolve them.

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. If a company is still relying on manual payment processing, it’s easy to get overwhelmed. You’d be surprised how effective sending a reminder a few days before payment is due.
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, there are more cost-effective methods for optimizing your accounts receivable with the resources you have.

To improve your A/R 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 occurring 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.
Automate complex manual tasks. Use automation to customize dunning emails and personalize them for different customer segments, automate remittance and cash application, and prioritize collections based on factors such as the amount outstanding and customer risk. Use the time you’ve gained to have your employees spend more time on higher-value 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.
Streamline 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.
Create a dashboard with real-time data that delivers a high-level overview of the KPIs that are important to you. With manual processes, it is impossible to keep track of what is happening with every customer. A comprehensive collections dashboard, however, can collect and process a high volume of data, analyze trends and patterns, and alert you to where issues might be so that you can take proactive steps to address them before they impact your bottom line.

Overcome Your Accounts Receivable Challenges with Gaviti

Traditional A/R processes suffer from delayed or inconsistent data updates, difficulty in integrating essential A/R tools into the current system and lack of control to effectively monitor and enforce processes. Gaviti’s autonomous A/R solution automates as much of the accounts receivable process as possible, eliminating errors that occur in repetitive and tedious tasks. It also connects with all of your financial tools, including accounting software, CRM and even multiple ERPs, with an onboarding process that takes only a matter of weeks.

Its modules include:

A/R collections. Take a proactive approach to your collections by defining and automating dunning emails based on predefined criteria. Record and streamline customer actions so that your A/R team can better resolve disputes and build stronger customer relationships. Prioritize collections efforts to optimize efforts and accelerate cash flow.
A/R analytics. Get real-time reporting and customized KPIs, including both standard ones such as total A/R, DSO, collections rate, customer risk. Track performance against your team and individual goals.

Cash Application. Automate your payment matching with 100% accuracy for payments made through Gaviti’s payment portal and 95% for payments made to the bank or a lockbox. AI-powered remittance matching helps reduce errors, avoid disputes and build better customer relationships.

Self-Service Customer Portal. Simplify payment by providing multiple payment options for your customer they can use 24-7, increasing the likelihood that they will pay on time. Automated payment reconciliation You’ll also get up-to-date visibility of your cash position with its ability to match invoices to payments in real time.

Credit Monitoring and Management. Deliver easy-to-follow workflows to customers that include online credit applications, credit request forms for customers, and pro-active flagging of risky customers. Gaviti’s auto-pilot also gathers information and makes data-driven suggestions about potential customers and the amount of credit they should be given.

Disputes and Deductions. Customize tracking and routing to resolve disputes in under an hour. Discover trends in disputes to proactively reduce similar disputes in the future, improving customer satisfaction and reducing the impact on your cash flow.

Want to learn more about how to overcome your accounts receivable challenges with Gaviiti? Speak to a specialist today!