Today, the news and updates around the world are around cash flow management and working capital, especially for mid-sized businesses. This is because they find it difficult to get paid on time as their customers are also facing tough times.
At HighRadius, our customers in the mid-market segment constantly seek our support to help them optimize their AR collections processes. Our answer to your question-” How to improve collections?” is straightforward— consider automation of your collection processes with the right software.
As the CFO or the finance lead of your company, you must be aware that collections or dunning is the process of communicating with customers to ensure effective recovery of cash for which an invoice has been issued. While it sounds simple in theory, it is anything but.
In 2019-20 itself, 50% of SMB invoices were paid late as per Xero’s analysis. In terms of monetary value, 43% of total B2B credit sales is yet to be paid in the US, as per the suppliers surveyed by Atradius collections.
Even as we lead you towards the solution for accounts receivable (AR) operations, let’s take a deeper dive into the challenges that we are hoping to solve.
What Accounts Receivable Collection Roadblocks Does Your Business Face?
Collections as a process have never been an easy one, however, the current economic situation has made it even more difficult. Most customers tend to ignore repeated reminder emails and delay payments over the due date because of cash flow issues.
As a result, most mid-sized businesses see a rise in DSO and a downfall in overall cash flow. But why are existing methods failing to cater to the needs of the new-age AR? Let’s discuss them one by one.
Manual processes hold back scalability
A top-performing finance team needs to adapt, improve, and execute new collection strategies. Legacy systems and manual processes don’t provide the required flexibility. The finance team finds it challenging to handle huge customer data and calls manually. Although, here are a few collections tips and tricks to help you streamline your existing AR collections processes.
Poor customer and inter-company communication
Due to the absence of proper record management, analysts may not be able to revert to customers on time. Within an environment of manual processes, it gets tough to gather data from different departments as well and stay up to date with the ongoing collection activities. 27% of finance executives blame ineffective communication with customers for late payments, as per CFO.com.
Poor collection calls queue management
A regular finance analyst makes 30+ calls daily. However, to be effective, they need to distinguish between low-risk and high-risk customers. With limited resources at hand, it gets difficult for small and medium businesses (SMBs) to prioritize their calls and time spent. It is essential to have a streamlined strategy to deal with changes in collection priorities.
An average collections team spends the majority of their time on calls. Targeting reluctant customers could lead to long calls eating up the valuable time of an analyst. At times, if the customer data is not updated in real-time, a customer who has already paid could get a reminder call. This will result in a poor customer experience and affect your business relationship with the customer.
How Does Digital Transformation Come to The Rescue?
Collections play a crucial role in the business’s financial success. Limited IT and operational resources would act as roadblocks to finance teams around the globe. As per Paystream Advisors, AR teams who embraced automation got an additional 42% time of their day to spend on more strategic activities.
In the B2B world, past due payments can hinder business growth. The older the payment is due, the harder it is to collect. Therefore, the primary goal is to prioritize customers based on aging buckets and follow up to avoid the risk of bad debt. Automation could make the AR collections management process easier by removing the tedious part of the job and allowing analysts to focus on customer communication as a top priority.
Automation can be a broad term. SMBs need to understand how exactly it can help streamline their collection processes. Let’s dive into how automation can optimize collection processes to collect cash faster while maintaining a positive customer experience.
Auto-generated emails and letters
Sending regular correspondences and reminders to individual clients is a tedious process, involving time and effort. However, automated dunning via email with easy-to-create correspondence templates could help in sending and tracking en masse collections emails to scale collections outreach.
Let’s take a look at the two basic types of emails sent to the customers as a part of the dunning strategy:
Reminder emails are sent a few days before the due date as a reminder to customers about their unpaid invoices. This ensures that the customer pays on time and ensures that the invoice does not overdue.
Past Due Emails
These emails are sent when the customer fails to make the payment before or on the due date.
- The first past-due email is sent either on the due date or a few days (grace period) after the due date of payment. In this case, to ensure a positive customer experience, you need to set the tone right in the email-template with a bit of a sense of urgency
- Many times, customers fail to make the payment even after 60-90 days post the due date. For such scenarios, set a bolder tone of the email to communicate the gravity of the situation. However, it is better to avoid an unfriendly tone in the email to ensure that you continue to sustain your relationship with the customer
Despite a few businesses adopting new technologies to optimize AR, most SMBs continue to use spreadsheets. However, increasing market share makes it challenging for analysts to rely on spreadsheets as it requires a lot of time and effort. Excel-based collections and dunning automation tools help SMBs collect more while maintaining a positive customer experience. With ready-made email templates used by professionals across 700+ leading order-to-cash teams, SMBs can focus on higher priority tasks.
Excel-based tools might boost productivity and help in scaling up collections outreach. However, adopting AR automation software is a more efficient solution to automate processes related to AR collections.
How Does Automation Software Help?
AI-driven proactive collections have led to faster payment cycles and lower DSO. As per PYMNTS.com, businesses that employed collections automation had a 23% lower DSO than their manual equivalents. The bottom line is that most SMBs are in dire need of innovations to improve collection processes.
The HighRadius’s eInvoicing & automated Collections solution is a one-stop-shop for all of your AR automation needs. It helps you automate account prioritization, enable VOIP calling, automated correspondence, reduce operating costs, and more!
With that being said, automation would work as a boon to the receivables industry, streamlining the O2C cycle. Leverage AI-enabled solutions to transform the way you collect payments and accelerate your revenue growth today.
Even as we come to the end of this blog, here are some of the next steps you can take:
- Identify improvement areas in your current collection processes
- Drill down on the technology that you use presently
- Discuss the problems that your collection teams face
- List down the features that your AR software needs to have
- Contact solution providers to understand the scope of the solution
- Determine the ROI and present it to your management
Reach out to us to learn more about how we can help or get a free demo now!