A/R Management & Automation
Collections Analytics
Customer Self Service Portal
Customer Invoice Distribution
Cash Application
Gaviti Disputes and Deductions
Credit Management and Monitoring
ERP Compatibility

The 8 Most Common Accounts Receivable Management Problems and Solutions

Effective accounts receivable management is one of the most critical aspects of boosting steady cash flow for your business. The AR team must identify problems and seek long-term solutions. Taking this proactive approach can smooth problems over before they spiral out of control.

Every business is different. Issues vary based on industry, business size, geographical location, and company culture. Even so, there are some typical accounts receivable management problems and solutions most businesses should review.

1. Poor Vetting Process for New Customers

When you extend credit, you must do so because you can reasonably expect to get paid that money eventually. Failure to properly vet customers opens the door to delayed payments, bad debts, court battles, and worse.

To make matters worse, bad debtors often take on as much credit as possible without considering their repayment ability. They may also have outstanding bills from previous creditors that could get prioritized ahead of yours. There’s no way to know without a thorough review.

Solution: Evaluate the creditworthiness of each new customer. Use analytics generated throughout the accounts receivable management process to determine the features of good versus bad debtors. Then, sell accordingly. Extend more credit to customers who match your criteria and and less (or none at all) to those who do not.

2. Using Legacy Systems That Create Data Silos

Legacy systems typically involve several moving pieces that rarely interact. For example, AR teams might use one system for invoicing and another for inventory management, but those two systems do not speak to each other. That creates two groups of data that operate at different levels of accuracy based on who updates them and when. Redundancy also becomes a problem.

Solution: Invest in automation technology that integrates well with the systems you use now and plan to use later. Start by analyzing your current infrastructure and determine inadequacies and potential upgrades. Then, choose AR solutions that meet your short-term needs and long-term goals.

3. Managing the Accounts Receivable Process Manually

Manual processes can create even more accounts receivable challenges. They often involve tedious tasks, such as hours of data entry. Workers have a high likelihood of making errors while updating this data. Spreadsheets are an excellent example of this. One survey found that 98% of respondents had witnessed errors that were bad enough to cost the company money.

Solution: Automation eliminates human error and increases the accuracy of information entered into the system. It also keeps documents organized in one central place, which makes it easier for AR teams to analyze and access this data whenever needed. Automation also reduces time spent on mundane tasks so employees can focus on more critical tasks.

4. Not Providing Adequate Payment Options

Payment friction will delay payment. The more difficult it is for a customer to settle the invoice, the more likely they are to procrastinate and prioritize other invoices that involve less friction. For example, newer companies prefer electronic methods for settling a bill, but older companies might still have systems for sending a check. Money is a finite resource, so customers could run out of liquid assets when they finally get to your invoice.

Solution: Customers are more likely to pay when you reduce friction in the process. Supporting several payment methods that match their internal processes is a big accounts receivable help. Processes and payment preferences vary across businesses, so the more options you can reasonably support, the better. Standard options include money orders, checks, ACH, credit cards, and cash.

5. Inconsistent Invoicing and Collections Processes

Inconsistency is more likely when companies rely on manual processes. For example, workers may manage calendars for sending out invoices to customers and might even manually prepare each one. What happens if they don’t complete the process in time and the invoices go out late? What if a worker forgets and a few invoices fall through the cracks? Not having a communication template is another form of inconsistency that can hamper the collections process.

Solution: Establish an invoicing and collections schedule and use automation to execute it. Use software that automatically sends out invoices on the same date for customers and sends out reminders before due dates. Communication templates ensure everyone has an effective message. An automation solution that offers personalization, will ensure that the message addresses the customer specifically and will lead to better outcomes. 

6. Disregarding Relationships With Late-Paying Customers

Not all customers who pay late are bad. Sometimes, companies take unexpected financial hits, and that ripples throughout the organization. The company could have recently paid a lawsuit, or its customers might not have settled their invoices. Economic hardships might also directly impact their industry while leaving others unscathed. These kinds of late payers could become loyal customers if you play a supportive role while they get back on track.

Solution: Consider whether your business finances can support a payment plan, especially if the alternative is receiving no payment at all. If the customer struggles with liquidity, bartering could be an option. For example, they could lend out their fleets during their slow periods to help you deliver your products faster. You will need strong negotiation skills to find solutions that work.

7. Inadequately Trained Workers

Your accounts receivable workers might not have the right skills to manage their duties. Even if they initially entered their roles with the right skill sets, a lot has changed since then. New business processes could have changed their work without adequately equipping them with the skills to complete tasks effectively. Automation software also comes with its own learning curve, so workers must learn how to use the new features.

Solution: Identify the skills your workers need to improve and master. Create training programs that meet those needs and provide adequate time and other resources for them to complete this training. Use a mix of technical and practical approaches along with role-playing scenarios so they can practice their newfound skills in a safe environment. Encourage them to ask questions and provide feedback so that you can fine-tune delivery over time.

8. Not Keeping Up With Compliance Requirements

As companies change and grow, different standards may apply. Organizations could become subject to particular laws after earning more revenue or changing the type of customers. For example, a wholesale dealer might allow people to create accounts for bulk purchases to boost business. 

Solution: Assign staff or use your legal team to monitor regulatory changes and evaluate the impact on your business. Provide adequate employee training to help them adjust their processes quickly so that you don’t face any compliance issues. Create a standardized process for addressing compliance-related tasks, such as sending out required correspondence or correcting errors in processing. Work with compliance officers and attorneys where necessary and always use compliant AR software.

How Gaviti Addresses Top Accounts Receivable Challenges

Gaviti’s customers have access to a host of resources that help them mitigate many of the challenges discussed in this article.  The platform’s automated A/R processes ensure timely collections and accurate invoicing, reducing the risk of inconsistent collections processes and uneven worker skills. The management of collections and dunning communications is centralized and modernized, overcoming the challenges of legacy systems and different regulations. Gaviti has many tools built in which help facilitate communication with customers and escalate problems before they become major issues. 

Are you ready to see how our software can transform your accounts receivable processes? Book a demo to get started.

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