Managing the accounts receivable process is challenging, especially for small businesses. This is where an established dunning process can help improve the experience and retain customers. So, what is dunning? How does it work and how can a proper A/R process help you optimize the customer experience?
What Is the Account Receivable Process?
Accounts receivable refers to money owed to your company. The A/R team encourages the collection of this money by sending out dunning notices to prompt payments. Companies each have different dunning processes, but they tend to follow the same basic steps:
- Establishing guidelines and practices: The first step is to set up policies for how you will manage accounts receivable. This step usually includes setting up a system for tracking payments, deciding when to send out reminders, and establishing late payment fees.
- Sending invoices: After you provide a service or ship a product, send an invoice to the customer with the total amount due. These invoices also include payment information, such as acceptable payment methods and the due date.
- Payment reminders: If customers do not pay within the agreed-upon timeframe, send out reminders. These can be in the form of emails, phone calls, or even letters. In some cases, customers can choose the notification option that works for them.
- Collecting payments: The next step is to collect the payments. It usually involves sending out invoices and reminders and following up with customers who are late on payments.
- Maintaining records: Finally, you need to keep track of all the payments made. This includes maintaining records of invoices, payments, and any late fees assessed.
How Can Dunning Notices Improve Accounts Receivable Performance?
Dunning notices are one of the most effective tools in the accounts receivable process. They prompt customers to make payments that they may have forgotten about or put off. By sending out reminder notices, companies can collect payments faster and improve their cash flow.
Review these benefits of using dunning notices:
- Collecting payments faster: Dunning notices remind customers that they owe money to your company. Consequently, it can prompt them to make payments sooner rather than later.
- Improving customer experience: Sending out dunning notices shows that you are proactive about collecting payments. This can reduce the need to rely on stricter methods for collecting payments after the fact, which can help you keep customers.
- Optimizing cash flow: Faster payment collection can help improve your company’s cash flow. Strong cash flow is crucial for small businesses that may not always have liquid assets to meet financial obligations.
- Legal documentation: Should you need to go to court or sell the debt, you have documentation of your continued efforts to secure payment. You might also need this if you choose to take a bad debt deduction on your taxes.
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How Can Automated Accounts Receivable Software Optimize Customer Experience?
While the dunning process is crucial for businesses, it often requires time and effort to manage. Automation can lighten this burden and improve business processes in the following ways:
- Convenient payment: Customers can have their payments automatically deducted from their bank accounts or credit cards each month. Doing this makes it more likely that they will make their payments on time, as they do not have to remember to send a check or make an online payment.
- Improved customer service: With automation, businesses can set up automatic reminders for late customers. This strategy improves the customer experience and retention by keeping things formal and professional and reducing the risk of anyone feeling targeted.
- Increased options: Automation can also create more ways for customers to rectify the situation before it becomes a bigger problem. For example, if a customer has trouble making payments, the business can set up a payment plan or offer a discount for early settlement.
- Transparency and control: All workers who need access to this information can find the data in one centralized location. While this does improve efficiency, managers need to ensure that only authorized persons have complete access.
How Can Gaviti Improve the Accounts Receivable Experience?
Companies often invest heavily in improving customer experience—and they should. However, investing in the worker experience is also essential, especially as turnover rates climb. Automation eliminates most of the tedious aspects of AR management so that your team can focus on more value-adding tasks. This, in turn, improves job satisfaction.
Gaviti provides accounts receivable process automation software that reduces DSO and boosts cash flow. Most importantly, it helps your team collect accounts receivable faster. Why take our word for it? Book your free demo to see it in action.