How to Make Your AR Recession-Proof
When the economy is in turmoil, cash flow slows down. It’s one of the unspoken — but undeniable — facts in any business, yet it’s also notoriously difficult to predict. Depending on the severity of an economic downturn, which industries it hits hardest, and how much you need to adjust your own business methods in response, accounts receivable can be relatively unaffected, severely impacted, or anywhere in between.
As uncertainty becomes more commonplace, it’s more important than ever to recession-proof your business — but especially your accounts receivable. Trying to anticipate and prepare for any outcome sounds impossible, but it’s more approachable than you might think.
The Strained Relationship Between AR & Economic Downturns
On the most basic level, economic recessions have a direct impact on accounts receivable: they slow cash flow. When recessions hit, businesses tighten their purse strings and, as a result, B2B companies of any size may find themselves chasing down unpaid invoices or fielding payment delay requests. This delay creates a domino effect across every team at the company, from sales to HR.
Sales will feel the growing pressure to bring more customers in the door; customer support and experience teams will spend more time chasing down customers to figure out payment and help with any technical issues; accounting teams will feel the strain of a narrow cash flow and the headache of manual collections. And if your business had to reduce headcount or budget because of that same economic downturn, fewer people will tackle more work.
Without proper preparation and modern finance processes, any downturn — not to mention a great recession or a global pandemic — can cause a troubling domino effect throughout the entire company. It’s not impossible to get ahead of, but it’s not easy. So while the economy is in a better place, we recommend following the below strategies for recession-proofing your accounts receivable.
Strategies for Making Accounts Receivable Recession-Proof
1. Invest in your customer experience.
When faced with a severely reduced budget, companies are more likely to nix more expensive partnerships — and the ones with the poorest customer experience. If your business is pleasant to work with, companies are more likely to keep doing business with you, even if you’re a little more expensive than your competitors. Be honest and communicative with your customers. Check in with your points of contact and see how they’re doing. A personal touch goes a long way.
2. Provide payment options and, if possible, incentives.
Oftentimes, the biggest issue businesses have with paying open invoices is that they can’t pay it all at once when the budget is tight. With this in mind, we recommend offering different levels of payment plans for your customers. Whether you offer interest-free plans or modest interest rates is up to you and your business goals. If payment plans aren’t possible for you, incentives can also be effective when it comes to keeping customers onboard and maintaining cash flow. For example, it may be beneficial in the long run to offer one free month for customers who are having trouble paying.
3. Maintain consistent communication with customers that have open invoices.
Especially during particularly significant economic downturns, it’s easy to forget about an unpaid invoice or miss a reminder email. While you should always have reminders for payments in place, it’s especially important to have them during a recession. If you offer phone support, give your customers a call and see how they’re doing in addition to traditional email reminders. When doing so, it’s vital to put empathy and human connection first — this will also contribute to the overall customer experience. Your points of contact will remember you showed empathy and care when looking at things to cut in their budgets.
4. Decide on a late payment fee structure and stick to it.
It may seem like this is the opposite of investing in your customer experience, but it’s a reality of running a business. Despite offering payment plans, incentives, and empathetic communication, some customers in less recession-proof industries will still delay payment as much as possible and try to avoid payment altogether. In those moments, having a late payment fee structure built into any contract would help mitigate those issues — just be sure to communicate them in advance and make sure your customers are aware of them.
5. Take advantage of automation tools and processes.
Outdated, manual AR processes are the last thing you want during a recession. Oversized spreadsheets, individual reminder emails, and dunning campaigns will only slow your cash flow down that much more, and that’s the last thing you can afford. By implementing automated AR processes like the ones Tesorio offers, you’ll save your team time and money — and provide a more streamlined experience for your customers, too. Tesorio, for example, automatically sends reminders and overdue notices to any customer in your database and even predicts when certain customers might become future problems. This gives time back to your team to focus on improving cash flow as much as possible outside of chasing down open invoices.
Business Continuity Relies on a Recession-Proof AR
Preparing your business and accounts receivable for recessions and economic uncertainty is vital for success, no matter how the economy is doing. Continued business growth relies on cash flow at every stage. By recession proofing your accounts receivable in advance, your business can weather the economic storm much better than it would without these strategies in place.
According to Forbes, in 2020 up to 75% of businesses had less than two months of cash on-hand related to operating expenses. If those same businesses had many months of unpaid invoices from multiple customers, they were likely operating with negative cash flow.
No matter your business size or industry, the more you prepare for the inevitable ebb and flow of the economy, the better.
Recession-Proofing Made Easy With Tesorio
During economic uncertainty, there are many competing priorities for you and your team to handle. Accounts receivable doesn’t have to be one of them. Let’s break down how Tesorio helped out a real customer, Veeva Systems, a leader in cloud-based software for the global life sciences industry.
Veeva came to Tesorio with several clear goals to make their AR process more streamlined and wanted to:
Collect cash faster and more efficiently
Spend less time on manual processes
Put in place team workspaces and automated workflows
Apply granular customer segmentation in collections processes
After adopting Tesorio's Accounts Receivable Automation tool to automate their collections processes and dunning campaigns, Veeva achieved:
75% reduction in bad debt write offs
50% reduction in 90-day aged accounts
2x improvement in collections team efficiency
Increased accuracy in collections forecasting
“Since adopting Tesorio, we have reduced 90-day aged [accounts] by 50%. We are very happy with Tesorio… [We] reduced time spent on lower priority accounts from 25% of the week to less than two hours per week,” said Michael Renner, Veeva’s Senior Manager of Accounts Receivable.
If you’re ready to start preparing for an economic downturn, Tesorio eliminates tedious collections processes and streamlines efficiency. Purpose-built to help businesses and teams like yours earn maximum cash flow with minimum effort, Tesorio can help from day one. Contact us today to learn more from our AR experts, or go through our interactive demo.