Best Tips to Gain Control Over Your AR Collections Process

July 25, 2022

The AR collection process directly impacts cash flow in a business. Is it any wonder that so many financial professionals focus their efforts on collection optimization? Focus alone, however, is not enough to deliver results. Managers also need to strategize to achieve their business goals. Use these tips to help you control and improve your AR collection performance.

Evaluate Lending Practices

When looking for ways to control account receivable performance, look beyond the final results. Go back to the initial point of contact and answer a few questions:

Do my lending practices reflect my financial bandwidth and comfort level with risk?
Have I adjusted lending practices to reflect each customer’s ability to pay?
What sources of information have I looked at to determine a customer’s ability to pay?
What are the characteristics of the people most likely to pay vs. least likely to pay?
Do my sales outreach and marketing strategies appropriately target the customers more likely to pay?

Evaluate Collection Practices

After evaluating your lending practices, turn your attention to your collections process. Your collections strategy should vary based on whether individuals or businesses owe you money. Consumer protection laws limit how you can pursue collection efforts for accounts receivable from individuals, so consult with a legal professional before fine-tuning your strategy.

Here are some questions that help you determine how to improve collections process results:

Do I have a clear and concise collections process document?
Is my collections process customer-centric?
Do I make it easy for customers to understand how to pay their invoices?
What are the consequences of not paying an invoice on time and have I been enforcing them?
Do I follow up with customers promptly after an invoice is past due?
Do I have a system in place to track customer payment history?
Can I quickly and easily identify which customers are habitually late payers?

Reduce Payment Friction

Make it as easy as possible for customers to pay their invoices. Offering multiple payment options is one of the best ways to accomplish this. Your finance team has likely identified the payment methods they prefer and might urge customers to use those options. However, this can introduce friction and lengthen the time they take to pay.

If early payment is a top business priority, make adjustments on your end for the convenient receipt of payment from multiple options. Consider the following:

Cash
Check
ACH
Money Orders
Credit cards

Build a Relationship With the AP Team

Your clients’ accounts payable teams directly impact your ability to collect timely payments. Get to know them. When you first initiate business with these clients, ask for the name and contact information for one point of contact and a backup. Provide the same information for a member of your accounts receivable team.

When taking on big clients, consider appointing a designated account manager. Big clients enjoy higher rates of financial solvency, but debt values tend to be high when they default. Some companies establish a higher-up point of contact instead of a member of the AR team. Potential options include the sales manager, financial controller, CFO, or general manager.

Leverage Technology

One of the most important things you can do to improve your collections process is to upgrade to the best A/R technology. Many software options can automate repetitive tasks and help you keep track of customer payments. Automation can free your team to focus on more complex tasks, such as negotiating payment plans.

In addition to automating collections processes, the right software can provide valuable insights. Look for a solution that offers robust reporting and analytics capabilities. This data can help you identify problem areas and develop strategies for improvement.

Communicate Early and Often

You may have difficulty collecting the money owed if you wait too long to contact customers about delinquent payments. Instead, reach out as soon as an invoice becomes overdue. You can send a simple email or letter reminding the customer of their outstanding balance and stressing the importance of timely payment.

When you don’t hear back after your initial communication, don’t be afraid to reach out again. The key is to stay in touch without being overly aggressive. Some companies have successfully leveraged the power of technology to automate and standardize this process.

Use Gaviti to Automate the Collections Process Flow

Our software has helped businesses worldwide regain control of the AR collection process. Managers use it to automate metric calculations, communications, invoice management, and dunning notices. Our customers have also used our software to create payment portals that allow their buyers to control the payment process and securely settle their bills.

Are you ready to see what Gaviti could do for you? Speak to a Specialist.