On an average more than 24% of the businesses have their revenue tied up in the overdue invoices which is a result of inefficient Accounts Receivable policy. This indicate that the overdue invoices are alone responsible for cash flow problems and forecasting issues and lost growth opportunities in almost quarter of the cases.
The problems doesn’t stop there. As a remote accounting firm we are often consulted by clients to solve their cash flow and working capital problems. More often no, business that often encounter these issues also allocate payments incorrectly, suffer errors on invoices, write off overdue receivables – all culminating to the cash flow problems. In most cases all these cash flow problems also happen due to common AR mistakes businesses tend to make and fail to correct them in the longer run.
In this blog today with the help of our Accounts Receivable experts at Back Office Accountants we identify common Accounts Receivable mistakes committed by business so you don’t end up making them. Read on to know:
5 Mistakes That Hurt Accounts Receivable Collections:
1. Inadequate Customer Communications: Standard and prompt communication protocol is the simplest way to quickly improve Accounts Receivable collection. However most of the businesses find it difficult to grow over the limited AR days when the low volume was easily managed by accounting resources. As the clients grow the complexity of the collection management exponentially increases.
“It is advice to set up a standard communication channels and point of contacts for the clients to build relationship, follow-up to ensure swift payment”, says one of our Accounts Receivable expert at Back Office Accountants.
2. Decentralized Accounts Receivable Data: Manual Accounts Receivable is notorious when it comes to invoice data. The data that exits in multiple formats at multiple locations that is difficult to fetch or report when needed can be nightmare for an AR team and enabler of inaccuracies and delays.
Even for business that employ multiple tools like ERP, invoicing and payment tools – they may tend to suffer integration issues leading to problems of their own. In longer run they usually cause more problems than they solve and which is why we recommend automation tool that offers a centralized location to captures data in multiple formats, organize and store at single location that is easier to access for the AR team. This platform not only makes it easier to access the key KPIs and stats but also makes it easy to perform database audit for regular update of information.
3. Lack of Standard Credit Approval Process: A standard credit approval process is first step a business can take to have better control over their collection process. In pursuit of generating high sales, most businesses tend to offer lax payments terms, extended credit limits or discounts that inevitable breaks the back of the AR. When these payments terms meet the wrong customer, businesses will find it hard to collect them and are ultimately are forced to write them off.
At Back Office Accountants we advise a standard credit review policy that evaluate the financial health, history, market and niche of the business before offering payment terms or credit extensions.
4. Limited Payment Options: It is 2021 and the business still majorly rely on checks and cash transactions and this can create delay in payment processing even when everything is perfectly take care of. And as adage goes, greater the delay higher the chances of businesses not getting paid which is whey business always need to optimize their collection mechanisms from invoicing to payment processing. So business are advised to offer multiple payment option to smoothen the experience and ensure swift payments.
5. Ignoring AR Reports: Even businesses that avoid all the mistakes mentioned above and built a robust AR system make this mistake of ignoring the AR reports until it’s too late. Majority only look at their reports when they sense a change in the cash flow and capital. Business who regularly catch up with their reports also may not get hands on latest numbers if they utilize multiple tools that take a lot of time to update and make reports for them. Business can try automated AR software that can not only help them solve the problems discussed above but also are adept at generating reports in seconds.
However if you are a business that do not go through the automaton but want to accrue all the benefits automated AR has to offer you can consider outsourcing Accounts Receivable. As a leading remote accounting firm specialising in Accounts Receivable Services, Back Office Accountants has been offering cutting-edge Accounts Receivable Services for all types of businesses for years now. If you are considering outsourcing Accounts Receivable to improve your cash flow and working capital with swift AR collection, you can contact us here: https://www.backofficeaccountants.com/