At Quadient AR, there are two things that we’re sure of:
- We published A LOT of content last year.
- Finance teams are ALWAYS busy.
Most accounts receivable professionals are too busy managing cash flow to spend time digging through blog posts. They need quick access to the pieces that will offer the greatest value to their organisation.
That’s why we've organised our top insights from 2023 into a consolidated collection. This information will improve your business’ AR management, helping accelerate cash flow, increase customer satisfaction and foster future growth.
Collections
The collections process can be time-consuming and expensive, and the longer it takes, the more it costs your business. Consider this:
- An account that is 90 days past due has a 69.6% chance of being paid
- An account that is 180 days past due has a 52.1% chance of being paid
- After one year of delinquency, the chance of collecting payment falls to 22.8%.
They say that if you can’t measure something, you can’t understand it — or improve it. One of the most important metrics in AR is your Collections Effectiveness Index (CEI). You might be familiar with the metric, but do you know why it’s important and the number you should shoot for?
- Your CEI calculation provides actionable information. It illustrates your team’s effectiveness in collecting receivables.
- A CEI of 85% or higher is considered good.
Cash Application
An inefficient cash application process can throw a major wrench into your customer experience and cash flow. Luckily, there are some easy fixes for the most frequent problems you’re likely to face. For example, decoupled remittances are a common challenge, but the issue can be easily solved by providing customers with a self-service payment portal option. Go To Post
Slow cash application not only impacts your business; it can also negatively affect your customers’ credit limit, and their ability to place orders. This should be a concern for any business when you consider that 96% of customers will leave you for a SINGLE negative experience. Go To Post
AI in Accounts Receivable
Artificial intelligence is quickly becoming a vital tool in accounts receivable, but many companies remain tentative about embracing it. Here are the facts:
- AI powered by machine learning can predict payment behavior with up to 94% accuracy
- Short-term cash flow forecasts are significantly more accurate and effective, when AI predictions are incorporated.
AR teams have begun using generative AI — like ChatGPT — to craft customer communications, but there are some best practices you should incorporate to get the most out of the technology. When crafting a generative AI prompt:
- Be clear and specific
- Ask open-ended questions
- Provide context
- Specify the format
- Use complete sentences
- Avoid excessive length
- Review the response
Dunning Letters
Despite your best efforts, late payments will impact your business. That means you need to a plan in place to address them, and that’s what dunning letters are for.
Do you know the keys to creating dunning letters that get you paid?
Here are some quick tips:
- Typically, the first communication is sent when an invoice is 30 days past due. Subsequent letters are sent at 60, 90, and 120 days past due.
- The content and tone of the letter will depend on how past due the account has gone.
- The first notification should be a simple, cordial note stating that payment is overdue and needs to be resolved as soon as possible.
- A good rule of thumb is to reach out to the customer by telephone the day after each letter is sent.
Ready for more effective dunning letters? Go To Post
Aged Trial Balance Reports
Aged Trail Balance reports and accounts receivable aging reports are both vital tools. But do you know the difference between them and when each should be used?
An accounts receivable aging report is typically run after all transactions for the month are posted to the general ledger. Some firms run these on a weekly basis, depending on the nature of their receivables and whether their payment terms are net 15 versus net 30, and so forth.
Doubtful Accounts
Allowance for Doubtful Accounts is often referred to as a “bad debt reserve.” It estimates the amount of debt that you expect to be uncollectible, helping leadership gauge the true value of your AR.
The Allowance for Doubtful Accounts that you set up will largely be contingent on industry. While there is no set standard to follow, a regular practice is that the longer your collection cycle, the greater the allowance you should account for.
At a glance, here are some late payment stats by industry:
Hungry for more educational insights? Check out our most downloaded resource from 2023 — The Accounts Receivable Email Toolkit.
