I’m not usually susceptible to bugbears. But there’s one accounts receivable misconception that never fails to frustrate me.
And that’s the perception that AR is a simple, function-based department. In fact, that’s how many organizations treat the job.
The problem with this is that not only are AR professionals smart, capable, and ambitious individuals who deserve to be taken seriously. They also perform business-critical activities every day, playing a fundamental role in strengthening a company’s financial health and future growth.
“If done right, AR strategy can play a part in delivering revenue visibility and growth.” – PYMNTS.COM
Without efficient AR, an organization is vulnerable to poor cash flow. And without the data provided by accounts receivable, it’s essentially impossible to forecast cash, which makes it difficult to plan growth initiatives.
Take Control of Late Payments
When you think about late payments, it can be tempting to believe that they are out of your control, putting the ball in your customers’ court. It’s part of a mindset that fails to recognize how AR impacts a company’s financial strategy.
AR automation allows you to take firm control of the receivables process, strategically approaching it to ensure steady cash flow. A software solution that uses predictive analytics and machine learning will study past payment behaviors to provide you with an accurate assessment of when a customer is likely to pay an invoice. Accounts are assessed and given a grade that indicates their likelihood of paying on time - or late. In addition, individual invoices are analyzed, and estimates are provided as to when you can expect payment. This allows your team to identify high-risk accounts and take a more hands-on approach with customers that show a strong likelihood of late payment.
By leveraging real-time data, the software quickly identifies changes in payment behavior so that you can spot problems before they become endemic. The software is constantly learning, and continuously incorporating fresh data. This means that the more you use it, the more accurate its predictions become.
Master Customer Communications
Improving customer communications is another vital step toward eliminating cash flow disruptions.
39% of customers cite poor quality service as the primary reason for late payments.
This can take multiple forms, from administrative mistakes like typos on an invoice, to late invoice delivery, or failure to properly communicate with customers. Departments reliant on manual receivables’ processes are particularly susceptible to these issues.
Automation software eliminates these concerns by integrating with every system in your tech stack. That means no manual data entry, or transferring data between systems like your ERP and CRM software when invoices are created and sent to customers. Through eliminating the possibility of human error, your AR team drastically reduces the risk of invoice disputes, ensuring faster resolution and payment.
Customizable communication workflows allow your AR team to create a communication cadence, from the time an invoice is sent until it’s paid, with escalation triggers in place in the case of ignored or unopened messages. These automated communications supply a direct link to the customer payment portal, allowing payments to be made via the simple click of a button.
Individually, each of these steps decreases the risk of late payments and help secure better cash flow. Taken together, they can make a transformative difference for an organization, generating greater liquidity that can help fund investments for business growth.
Plan for the Future
Features like machine learning and predictive analytics don’t just help eliminate late payments. They allow finance departments to conduct more accurate cash forecasting.
The basic steps of a cash flow forecast are simple:
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Decide how far out you want to plan.
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List all incoming cash.
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List all outgoing cash.
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Subtract your net outgoing from your net incoming.
A positive number indicates that you have more money coming in than going out.
On the surface, factoring receivables into a cash forecast should be simple. Every invoice has a due date, so you should be able to list it among your incoming cash if that date falls within the period you're forecasting. However, while receivables are considered liquid assets, customers may pay late or default on an invoice altogether. Too many of those incidents can play havoc with a cash forecast.
That’s where predictive analytics comes into its own. The technology not only tells you the accounts that are likely to pay late. They also predict the timeframe in which a payment is most likely to be received. Using artificial intelligence, the software can provide these estimates on individual invoices and for your accounts receivable as a whole. By analyzing all your customer payment data, you gain insight into when and how much money you can expect to be flowing in at any given time.
A top-tier automation solution (like Quadient AR) can make these estimates with up to 94% accuracy, meaning that the numbers you use to estimate your cash flow are accurate. The benefits of accurate cash forecasting are wide-ranging. Among the most notable impacting company growth are the ability to:
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Commit to operational and investment spend with confidence.
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Reduce working capital by negating the need to borrow and make spending decisions based on the cash the business will have.
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Eliminate the interest charges associated with borrowing.
By optimizing the accounts receivable process, AR becomes a transformational component of business growth, increasing working capital and providing the confidence needed to make vital investments for future success.
To learn additional ways that accounts receivable grows revenue, download the Become a Revenue Hero: Credit 2 Cash eBook.
