When it comes to the invoice-to-cash process, the most common pain point next to cash application is collections management. If you’re in finance you can relate to the manual steps, time-consuming efforts, and constant back and forth with customers… all while your receivables continue to rise.
The collections frenzy is all too real in organizations today. Collections teams are in a sense firefighters: they put out raging fires, respond to collections crises and rescue the cash they’re owed from bad debt. Once they’ve put out one fire, it’s off to the next one burning down the street.
A common trend for most organizations is to fix this issue by adding headcount, this, however, is a temporary fix. Not only do collections continue to rise, but also the number of people needed to manage it.
The result? More overdue accounts, handled by a growing collections team. This situation is not fiscally sustainable. So how can you better manage the collections challenge?
First, we must recognize the nature of collections: traditional, reactive and lack of real-time insight. In a manual process, collections data represents a static point of time (ERP reports, XLS sheets), narrowing your team’s view of overdue accounts to a rear-view mirror. This encourages action on what has happened versus prevention of future collections issues. A collections process that leverages real-time data can stop a crisis in its tracks and provide predictive insight to prepare for the future.
With the surge of FinTech, various collections management tools have entered the market. A key solution to keep your eye on is cloud-based AR platforms, that will automate the invoice-to-cash cycle. Why? They hold the secret to accelerating collections, getting paid faster and reducing bad debt.
Here are the 3 secret ingredients to turn your AR into cash with collections tools baked into an AR automation platform:
Secret #1: AR Automation platforms turn insight into action to be proactive vs. reactive and determine appropriate follow-up:
The traditional, manual nature of collections management is inefficient, which not only creates a negative experience for your customers but for your team as well. Without real-time insight and relying on static reports from your ERP or internal excel sheets, your team is reacting to the collections crisis.
The tell-tale sign that your collections process is out of date is when your team lives and dies by excel. Every day that passes and as your team pulls reports from your ERP and manipulates data in excel is an expensive day…it’s lost time to collect cash.
So what works better than excel and pulling reports from your ERP? A best-in-breed collections tool with a real-time AR dashboard. This is insight at your fingertips, highlighting key metrics to help you be proactive vs. reactive and determine an appropriate course of action for overdue receivables:
- Top outstanding accounts: hot accounts your collectors need to follow-up on
- Payment trends: # of invoices issued against # of invoices paid with day-to-day and month-to-month trends to help you predict cash flow
- Live aging receivables report: on the fly, view all your aging buckets (i.e 30, 60, 90, 90+), of total value outstanding in each bucket with the ability to drill down and assign accounts for follow-up with your collectors
- Live DSO counter: live metric displays in real-time, the average days outstanding of your receivables
This is a live-eye into the health of your AR. If a customer makes a payment, it is automatically reflected, allowing your team to work with information that is current. Not only does this improve effectiveness and efficiency, but also enhances the customer experience.
No more uncoordinated collections calls where your team demands payment from a customer in a static report, then discovers the customer submitted payment earlier in the week. Unfortunately using static data these types of scenarios happen regularly and creates friction between your AR team and customers. A real-time AR dashboard can prevent this.
Secret #2: AR automation platforms streamline invoicing, reminders and tasks to save time and refocus your team on high-value efforts.
Sending invoices by mail or email? This is inefficient. Invoice delivery by mail can delay your collections by days. Sending an invoice by email is better but can still take hours of your team’s time to create them individually and attach the appropriate documents in PDFs to send to multiple contacts in accounts. A critical problem with both methods is the lack of visibility into the delivery, which poses questions on both sides. Your team is wondering, “Has my customer received their invoice?”, while your customers are asking, “Can you resend the invoice?” and late payers are claiming, “I didn’t receive it”.
With an AR automation platform, you can automate invoice delivery and automatically email invoices to your accounts with full visibility. If a customer opens the email or views an invoice, you’ll have full tracking on their actions to help your collections team follow-up appropriately.
In addition to email delivery, an AR automation platform can automate follow-up and reminders. These tools enable your team to create custom messaging and templated reminders to specific accounts according to the aging buckets (30, 60, 90+) and help encourage payment.
These reminders are automatically triggered from the platform and allow your customer to log into their self-service payment portal where they can view all outstanding invoices and settle their accounts immediately. No need to wait for checks in the mail, allowing you to get paid faster.
AR automation platforms, also allow your team to assign accounts to specific collectors and leave internal notes at the account level. This enables better collaboration between the accounts key stakeholders (AR, Sales, Client Services) to keep the entire team synergistic on details, follow-ups, and actions.
Secret #3: AR Automation Platforms Focus on Customer Excellence with a Self-Service Invoice and Payment Portal
You may not have thought about it before, but after a sale, your accounts receivable team interfaces with your customers the most. You have to ensure this interaction is a positive experience and your AR team builds effective relationships with your customers. Not only will it create more loyal clients, but it will also get you paid faster.
Collections typically cause friction between business and their clients. Reminders to pay, based on inaccurate data, can cause a customer who has paid to be angered with an unnecessary collections phone call.
There are many friction points of a collections process that are eliminated with a self-service invoice and payment capability powered by an AR automation platform. Here are some key ones:
Paper / emailed invoices: sending customers invoices in this method can lead to the common excuse “I never received the invoice”. It gets lost on their desk, lost in their inbox and even though the customer intends to pay it, they can’t find it in the first place.
Solution: Having a customer self-service invoice and payment portal allows your customer to login and see a running history of all current and past due invoices. No need to scramble around searching or contacting your team – all information they need is available 24/7.
Checks by mail / manual cash application: not only is there a lot of check fraud but on top of that, when customers send you checks this not only delays payment (thanks to snail mail) but skews your reporting. Even though a customer has paid, in a manual process your report doesn’t show this yet. The check is on a desk, it hasn’t been applied yet, so if it’s not in the system, the payment didn’t happen. This leads to your collections team falsely calling out to the account demanding payment – a negative customer experience.
Solution: By allowing your customers to pay online and settle their account within your self-service customer portal, they can instantaneously pay with EFT / ACH or credit card (if you choose to extend this payment option). Not only do you get paid right away, this payment reflects in real-time to your customers’ balance and applies cash automatically. Now all your reports and collectors activities are up to date. No more embarrassing phone calls that can cause tension in your customer relationships.
Collections is a key problem for organizations and where there is pain, there is an opportunity in the market to create a solution. That’s why we’ve focused on helping B2B businesses adopt collections best practices with our AR automation platform. Learn more how we can help you collect smarter here. In the meantime, hopefully these secret ingredients are cooking up some ideas on how you can leverage data in your organization to be proactive vs. reactive and put out collections fires before they happen.