Top Accounts Receivable Challenges for 2023: Be prepared

As accounting processes continue to evolve, it’s becoming increasingly clear that harnessing the power of technology can help businesses streamline their operations and make more informed decisions. And with the proliferation of AI and machine learning tools in the digital landscape, 2023 is the perfect time for accounts receivable (AR) teams to examine their processes and find areas for improvement through better technologies, tactics, and process management.

Below, we’re reviewing some of the top accounts receivable challenges in 2023 and offering quick ways to shore up your collections process. If you’ve been looking for accounts receivable process improvement ideas, you’ve come to the right place.

1. Automation of Key AR Processes

Technology is changing at a rapid pace across a variety of industries. From marketing automation to cybersecurity to customer support, businesses are applying automation in a variety of creative ways. Accounts receivable is no exception. Handling challenges in the accounts receivable process begins first and foremost by streamlining operations and freeing up resources to focus on the big picture.

Digitalizing manual AR processes can be the single biggest improvement an AR team makes to its workflow, though care must be taken to make changes carefully and deliberately, lest the transformative nature of automation disrupts more processes than was originally intended. With the right AR automation software behind you, it’s easy to automate many of the processes that teams handle on a day-to-day basis:

• Invoice management, including creating and sending invoices on predetermined schedules with pertinent customer data included.
• Reminders and notifications for customers, both for payment reminders before invoices are sent and for dunning strategy emails sent to delinquent clients.
• Credit check and risk analyses, which offer a concrete way to determine which clients are most at risk of defaulting on payment terms.
• Cash application support, helping guarantee that any payments made are applied correctly to their corresponding invoices.
• Analytic assessments, which offer insight into broader trends, such as which invoices are likely to come up late based on historical data.

These processes have been staples of A/R management for years now, but in 2023, AI tools are expected to improve drastically in quality. Businesses should start assessing their processes now to understand the best way to move forward by leveraging AR automation as a primary strategy.

2. Late Payment Management

Late payments continue to be a major challenge for businesses, especially small and medium-sized enterprises, as they negatively impact cash flow and make it difficult to meet financial obligations. Given the rising infation and interest rates, managing late payments should be a top priority for businesses in 2023.

As a top area of focus, consider metrics like your days sales outstanding (DSO) rates and how small changes to processes can improve the accounts receivable cycle. Here, strategies for improvement could include the following:

• Streamlining invoicing and billing processes: By automating invoicing and billing processes, teams can ensure that invoices are sent out in a timely manner and that customers receive accurate and complete information.
• Offering multiple payment options: By providing customers with multiple payment options, teams can make it easier for them to pay their invoices, which can help to reduce DSO.
• Improving customer communication: By proactively communicating with customers, teams can stay informed about any issues or delays that may be affecting payment and take action to resolve them.
• Using credit check and risk analysis: teams can use credit check and risk analysis tools to identify customers who may be at risk of defaulting on their payments and take preemptive action to mitigate the risk.
• Utilizing AI and automation: by using A/R automation, teams can gain visibility into which invoices are likely to be paid late and take proactive measures to minimize the impact of late payments.

3. Credit Risk Assessments

The economic and business uncertainty caused by COVID-19 has led to an increase in credit risk, making it more difficult for businesses to identify which customers are most likely to default on their payments. This has held true since the beginning of the pandemic, and we expect it to remain true throughout 2023 and beyond.

Here, companies should focus their attention on processes that help them better define and analyze the potential risks of credit management across all parts of the accounts receivable cycle:

• Conducting credit evaluations: By conducting credit evaluations of customers, teams can assess the creditworthiness of customers and identify those who may be at risk of defaulting on their payments.
• Utilizing credit scoring: Teams can use credit scoring models to evaluate the creditworthiness of customers and identify those who are most likely to default on their payments.
• Setting credit limits: By setting credit limits for customers, teams can limit the amount of credit extended to high-risk customers and reduce the potential losses from default.
• Monitoring customer credit: Teams can monitor the credit of customers on a regular basis to identify any changes that may indicate an increased risk of default.
• Implementing a credit policy: By developing and implementing a credit policy, teams can establish clear guidelines for extending credit, monitoring credit risk, and managing bad debt.

4. Data Security Management

With more businesses automating their accounts receivable processes and storing sensitive customer data digitally, data security and privacy have become increasingly important issues.

Accounting departments are a prime target for cyber attacks because they often have access to sensitive financial information, such as credit card numbers, social security numbers, and bank account information. As time goes on, cyber attacks will continue to grow in sophistication, and accounting firms need to be prepared.

Your accounting software should have built-in features to help limit access management and other security controls, but teams should consider ways to go beyond the minimum and make security a true organizational priority.

• Restricting access to sensitive information: Only authorized personnel should have access to sensitive customer data, such as credit card numbers and personal identification numbers.
• Encrypting data: Data encryption can help protect sensitive information from being intercepted or read by unauthorized parties.
• Regularly reviewing and updating security protocols: Accounts receivable teams should regularly review their security protocols to ensure that they are up-to-date and effective.
• Educating employees: Employees should be trained on data privacy best practices and the importance of protecting sensitive information.
• Regularly monitoring for suspicious activity: Regularly monitoring for suspicious activity, such as unauthorized access to sensitive data, can help detect and prevent breaches.

5. Regulatory Compliance

There are many legal and regulatory requirements that businesses must comply with when it comes to accounts receivable, such as data protection and anti-money laundering regulations, which can be complex and costly to implement. 

This may not be a specific area of focus for boots-on-the-ground A/R teams, but it’s vital that organizations as a whole understand their responsibilities to regulations like the General Data Protection Regulation (GDPR), the Sarbanes-Oxley Act (SOX), and the California Consumer Privacy Act (CCPA), among others.

Here are a few strategies for ensuring that an organization achieves—and maintains—compliance throughout 2023:

• Regularly reviewing and updating policies and procedures to ensure that they are in compliance with relevant laws and regulations.
• Conducting regular risk assessments to identify and mitigate potential compliance risks.
• Ensuring proper data governance and ensuring that there are proper controls in place for data management, including access, retention and disposal of data.
• Providing regular employee training on compliance requirements and best practices
• Regular audits of internal and external processes to ensure compliance with laws, regulations and company policies.

Cover Your Bases and Hit the Ground Running in 2023

As the pace of business continues to accelerate, it is more important than ever for organizations to stay competitive and to keep up with the latest technologies. To ensure that AR teams are ready to handle challenges in accounts receivable management, companies should first examine how competitive solutions—like AR automation—can give their companies an edge. Automating routine tasks helps improve efficiency and accuracy while providing an extra layer of security and compliance.

At Gaviti, we have years of experience helping companies like yours deploy automation throughout their AR system. If you’re interested in ensuring that your team has the right tools to meet the challenges of the coming year, contact our team and book a demo of our platform!

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