The Problem with Treating All Invoices Equally

The general goal of any Accounts Receivable (AR) department is simple enough: Get invoices out as quickly as possible and get them paid the same way. There’s more to it though because it makes a much bigger difference to your company’s bottom line when you receive payment on a $500,000 invoice than on a $5,000 one.

Despite that—whether out of habit or a lack of automation—a lot of companies still use a one-size-fits-all process for invoicing and collecting, regardless of invoice size or the customer’s size, profitability, or relationship longevity. But allocating the same level of attention and human resources to the $5,000 invoice as you do the $500,000 one doesn’t make much common sense or dollar sense.

5 Steps for Differentiating Your Invoices

These five steps are the key to developing a right-sized strategy for every invoice, an initiative that can improve your AR efficiency and ultimately your days-sales-outstanding (DSO) finance KPI.

1. Gather and analyze AR data.

Before going forward, you need to look back at your AR history, i.e., the information captured in your company’s systems. Once you extract all of your invoicing and collections data into a usable file, you can assess what’s occurring every month, such as:

• Number of one-time and repeat customers
• Invoices per customer
• Invoices per different dollar ranges
• Total revenue per customer
• Average days to collect per customer
• Touchpoints per invoice

2. Create categories using custom tags.

Using your data analysis, divide customers into categories based on the number and dollar size of their invoices, and tag them. For example, your custom tags might things like:

• White Glove Client
• High Priority
• Credit-Risk
• Low Priority
• High Volume - Low Dollar
• Low Volume - High Dollar

3. Assign invoices.

Next, let your tags determine the most appropriate resources to devote to your various invoice and customer types. For example, you can assign all ‘White Glove Clients’ to an AR staff member or team that has the experience to handle that. It makes sense to make a similar assignment for customers who generate significant revenue through ‘Low Volume - High Dollar.’. And then a less-experienced or smaller AR team can handle all the individual, low priority to one-time or infrequent customers.

4. Develop virtual communication campaigns.

Less time should be spent working to collect a $5,000 invoice than a $500,000 one. So, it makes more sense to have an expedited and automated process that uses virtual campaigns to remind customers about those low dollar invoices.

5. Dedicate human resources to more complex invoices.

Now, your AR team is free to spend more time personally calling or emailing customers with higher dollar invoices or more important relationships about their outstanding invoices.

Partner with Tesorio

The Former CFO of Veeva Systems explains why treating your invoices proportionately versus equally is a game changer. Through the help of Tesorio’s AR automation, his team deployed this right-sized strategy and cut their over-90-day invoices by 50% in one year. Reach out today and let Tesorio do the same for your company.