Companies in the Business Services sector work with a diverse range of customers, supporting them with their core organizational activities from HR through to finance. For the AR teams that work in them, that can mean a lot of work.
Selling services rather than products can make disputes and late payments more likely, causing days sales outstanding (DSO) to grow. This makes it particularly important for AR teams in Business Services to onboard reliable customers, as any weaknesses in their credit management process can be harshly exposed when it’s time for customers to pay the bill. On top of this, every penny counts as the companies that operate in this industry rely heavily on people, rather than technology. This puts pressure on the AR to bring cash into the business as quickly as possible.
To optimize your AR process, you’ll need to overcome these four common problems.
A ballooning DSO
One of the most common problems AR teams face in the Business Services sector is a high Days Sales Outstanding (DSO). Put simply, it takes customers too long to make payments. As a result, cash flow slows down, impacting an organization’s ability to manage fundamental responsibilities like paying suppliers. It can even create an inability to pay employee wages.
One of the leading culprits of a sky-high DSO? A lack of automated practices that allow the receivables team to track invoices and account aging effectively. Without a centralized system, members of the AR team are forced to jump between different solutions, such as your ERP and CRM, to gather vital information such as invoice due date and payment history.
In addition, these segmented systems make it difficult to view your entire AR portfolio to identify which accounts take priority in terms of collection activity. All of which leads to a higher chance of late payments.
To solve the issue, it’s vital to find a solution that integrates with the rest of your tech stack and provides detailed reporting that will allow you to sort through your AR by things like due date and dollar amount. This allows your team to target upcoming and past due invoices first, as well as prioritizing high dollar accounts.
Frequent invoice disputes
A high volume of invoice disputes is another common headache. Whether due to issues such as an invoicing error or customer dissatisfaction with the delivered services, invoice disputes not only delay payment but burden your team with extra work. The dispute must be investigated, validated, and rectified. If your team still uses manual methods for AR, that means digging through files, contacting different departments, and frequent communications with the customer.
55% of AR professionals say that managing disputes is their hardest task
An automation solution that integrates with your tech stack and utilizes AI is key to eliminating this problem. By integrating with things like your ERP and CRM software, your team can access all relevant customer and order data from a single location, minimizing time spent on research.
Artificial intelligence enhances the process by analyzing disputes submitted by customers. It then sorts them according to severity and forwards the disputes to the most appropriate member of your team for resolution.
All of this means that disputes are resolved faster. Cash flow stays steady, and your AR team doesn’t get bogged down with extra work.
Manual credit processes
How your organization manages credit, and who and how that credit is extended is a key part of keeping your accounts receivable healthy. Unfortunately, many Business Services organizations have a manual credit process that provides minimal information on customer payment behavior, making it harder to spot chronic issues or make informed credit decisions.
It’s important to select an AR solution that provides you with immediate customer credit information, as well as enough data to understand customer payment behavior.
AR software such as Quadient AR provides users with an Advanced Credit Module, which gives your team the tools needed to effectively manage credit. Not only does the solution integrate credit data from organizations such as Dun & Bradstreet and Creditsafe to provide a credit score, but it also incorporates real-time customer data such as payment behavior. That means that scores reflect your customers’ current situation.
Imagine how it would impact your team to predict customer payment behavior with 94% accuracy!
By leveraging AI and machine learning, the software also analyzes customer payment behavior and provides information on invoices that are likely to be paid late, and when your organization can anticipate payment. This data allows you to focus on high-risk accounts in order to prevent them from becoming seriously delinquent. Because of machine learning, the software is continually refining its techniques, meaning it gets more accurate with each use. In fact, it can be as much as 94% accurate when it comes to predicting payment behavior.
Centralized data and the ability to share reports also allow your AR team to quickly share customer information with teams like sales so that the reasoning behind credit decisions is understood.
High labor costs
Business Services is a labor-intensive sector, as the company’s operations rely heavily on people, with little opportunity for automation. This makes every penny count and the pressure is on the AR team to achieve maximum productivity.
As RSM notes in their 2023 Business Services outlook, “The goal is to not only maintain or increase the top line, but also decrease operating costs while retaining the staff who were internally trained and cultivated. This is increasingly important as job openings continue to outpace the number of people seeking employment.”
For teams using manual methods for accounts receivable, this is virtually impossible. Whether it's time wasted digging through spreadsheets to follow up on payments or attempting to compile reports, a lack of automation means your team is spending hours on “busy work”. That leaves minimal time to follow up on past-due invoices, or strategically approach collections to ensure that an invoice doesn’t go past due in the first place.
79% of surveyed firms state that automation enables them to improve team efficiency
This forces finance managers to look at expanding head count, but that’s an added expense. A better option is an AR solution that allows you to maximize efficiency with the talent that you have in place. This is particularly vital when it comes to handling the collections process.
Ideally, this can be achieved with software that automates fundamental processes such as invoice delivery, customer communication, and cash application.
By adopting the tools and strategies outlined above, organizations in the Business Services sector give themselves the best chance to not only survive through current socioeconomic challenges but to thrive tomorrow and beyond.
To discover more tools that will help you take your accounts receivable from good to great in the Business Services sector, check out our Accounts Receivable Collections Playbook.
