accounts receivable cash flow invoice reminders

How automation quickly converts accounts receivable to cash

By mihiri Oct 16, 2018 Comments

The accounts receivable (AR) function is often targeted by Boards as a key driver to improve working capital. Free up the cash, they say. But how do accounts receivable departments step up to the plate when they’re not prepped for success?

Mid-sized companies frequently find themselves stuck in small business mode with a clunky debtor management ‘system’ that no longer works for the growing business: a mess of spreadsheets, multiple data sources and hearsay leading to a haphazard collection process. Without the right tools and processes in place, even the most proficient staff can run out of steam for what seems like an endless job of chasing payments. As one of our clients told us recently: “It felt like I was always flying blind.”

Without a navigation system on board,  it’s hard for your key drivers of cash flow to keep a laser focus on overdue invoices. Accounts receivable professionals can be working very hard, but the cash remains locked in the land of the lost.

Accounts receivable duties are ideal for automation

The fact is, workplace productivity improves with automation. Automation is perfectly suited to accounts receivable tasks because they fit the following automation criteria:

  • The task is rule based.
    For example, if an invoice payment is 2 days overdue, then send a reminder.

  • Actions follow a consistent workflow.
    For example, send payment reminders at 2 days overdue, 10 days overdue, then call the debtor, then send a demand letter by Day 30.

  • Requires a high volume of output.
    For example, issuing hundreds of invoices then sending reminders requires a high volume of communications.  

  • Can be customised from templates.
    For example, use the same format for reminder messages and customise them per customer account.

Even better, when you automate the repetitive manual tasks, you free up valuable AR staff time for the high-touch accounts receivable duties that benefit most from human skills of listening, empathy and negotiation. That’s more time for phone calls to debtors, dispute resolution and customer service.
Download 8 Free Reminder Templates

Automation speeds up collection times

Your days sales outstanding or DSO is the average number of days it takes for your business to get paid i.e. your average collection time.

Your DSO can drastically improve if you move through the invoice-to-collection process efficiently:

  • Issue invoices quickly (the beginning)
  • Communicate promptly and consistently as payments become overdue (the messy middle)
  • Make it easy for debtors to get money into your bank account (the end)

Automation offers solutions across the AR spectrum. You can automate:

  • the issue of new invoices created in your accounting software
  • a pre-reminder (‘Hi, your invoice is due for payment soon’)
  • a series of payment reminders by email and sms
  • and even a self-serve checkout for debtors to pay invoices online

The end-to-end nature of automation can greatly reduce your reliance on someone's hands-on time, which is notoriously interrupted, particularly during busy seasonal trade. Automation will move through the process for you, 24/7, all the while condensing the time between invoicing and collecting. And that’s how working capital can predictably improve.

Reducing the cost of accounts receivable

While your business may eventually collect payment, it accumulates costs each day that accounts receivables age. You’ve collected the cash, but at what cost?

Here are some costs associated with an inefficient accounts receivable system:

  • Human labour on routine tasks. Not only are you paying for staff  time, you could be wasting their time and talents on tasks that don't fully utilise their skills. Mid-sized businesses that use ezyCollect, for example, report a saving of up to 8 hours/day on routine accounts receivable duties.

  • Fees on short terms loans or invoice financing options. Accessing money from  lenders is an option when cash flow is tight but it’s never without a cost.

  • Errors and omissions. When tasks are reliant on a hands-on approach, they are susceptible to inaccuracies, variations in people’s productivity throughout the day, and divergence from agreed standards. Any requirement to re-do steps in the collections process prolongs your collection time.

  • Delinquent debts. As invoices age, they become increasingly difficult to collect. Once an invoice is more than 12 months old, Dun and Bradstreet suggest there is a 90 percent chance you will need to write-it off as a bad debt. That’s the value of the sale wiped from your books, plus the expense incurred trying to collect the debt.

Automation helps to overcome debtor excuses

Dealing with debtor excuses is par for the course, just ask any accounts receivable professional. Here are three common reasons for late payments and how automation can overcome them:

#1 I never received your invoice

The automation fix: Set a rule to issue invoices. For example, ezyCollect can automatically issue new invoices to your debtors once they are created in your accounting system. Then automatically attach invoice copies to every automated reminder so your debtor always has a copy of the invoice.

# 2 I forgot to pay - you should have reminded me

The automation fix: Set up a communication workflow that automates a series of payment reminders that reach debtors via email and sms. Customise reminder templates so your debtor understands it’s you communicating with them, not a third party they have no relationship with. Schedule in a phone call as part of your escalating actions in your workflow.

#3 I’m out of the office / Your office is closed

The automation fix: Add a ‘Pay Now’ prompt to your invoices and reminders so debtors can click and pay online, from any device, anywhere. Payments come in 24/7, regardless of who’s in the office. Depending on your software, payments can even be auto-reconciled for you.

Your receivables before and after automation

So how does the AR process change when automation is working in the background?

This table describes a few changes you can expect:

Current

With Automation

Staff look at a number of sources to report on the current status of aged receivables.

Aged receivables are mapped for you, showing a distribution of ageing invoices. Dashboard analytics provide real-time data of  key metrics such as value of invoices due and overdue.

Late payments persist due to poor visibility of ageing invoices.

Dashboard reporting puts a spotlight on largest overdue debtors, longest overdue debtors and debtors entering the danger zone of defaulting.

Filters let you drill down into debtor sets and find ageing debtors immediately.

AR person prints an aged receivables report then talks to other staff about debtor’s payment history and promises to pay.

Each debtor’s account history is maintained in one central hub and includes all reminder communications and debtor notes.

AR person communicates with debtors only after an invoice becomes overdue.

Automate a friendly reminder that payment is due soon, prompting debtors to pay early or on time.

Call all debtors from a long list of overdue debtors regardless of previous communications.

Each morning the system emails you a list of debtors who have reached the stage of needing a reminder phone call.

Manually type reminder emails to large-value debtors; there’s no time to send reminders to everyone.

Use merge fields to customise reminder templates with debtor information. Then allocate all or some debtors to an automated workflow that methodically delivers email and sms reminders on schedule.

Chasing lapses after a few reminder attempts.

Chasing escalates with one-click action to send a demand letter or outsource to a debt collector.

AR person remains at desk to process credit card payments over the phone.

Debtors complete credit card payments via clickable Pay Now buttons on invoices and reminders, at any time, day or night.

Payments are received but not acknowledged.

Thank you email is automatically generated when a debtor pays and reinforces positive payment behaviour.

Hire more staff or outsource to a bookkeeper to handle a growing list of debtors.

Automation is highly scalable and can handle your growing list of debtors.


The final word

Productivity and cash flow improve with automation for accounts receivable management. Apart from the operational wins, the cost savings and customer satisfaction are additional returns on investment. No industry is immune from technological transformation. But the ones that get ahead of the curve will reap the benefits of competitive advantage.

To see how ezyCollect's automation can improve your AR process and cash flow, request a demo today:

Request a demo

 

accounts receivable cash flow invoice reminders

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