Managing accounts receivable becomes increasingly challenging as a business expands and its revenue grows. Invoices can accumulate, backlogs can develop, and cash flow can suffer, making it crucial to prioritize efficient management of accounts receivable.

The knee-jerk reaction to this issue is frequently to increase the size of the accounts receivable (AR) team. However, simply employing more people to solve a problem frequently results in diminishing returns. Manual processes are frequently slow and cumbersome, and additional staff may not be able to meet the needs of a business that is expanding.

So, what is the remedy for this issue? Customized, automated collection campaigns, predictive analytic tools, and enhanced workflows that optimize cash flows are the solutions.

Ineffectiveness is Costing You Money

During periods of rapid growth with too many invoices to keep up with, the following inefficiencies are likely to cost your team excessive amounts of time and money:

• Too Many Systems: Managing accounts receivable may involve multiple systems, including email, Excel, enterprise resource planning (ERP), and customer relationship management (CRM). Switching between these systems can be time-consuming and limit your team's ability to process and follow up on invoices.
• Excessive copying and pasting: When dealing with multiple systems, manual data entry is frequently required. This can lead to errors and consume time that could be utilized for more impactful initiatives.
• Manual Prioritization of Tasks: Manually sifting through aging reports to determine top collections priorities is time-consuming and may prevent your team from conducting adequate customer outreach or managing dunning campaigns.
• Treating Every Invoice the Same: Applying the same effort to every invoice, regardless of dollar amount or customer relationship, can waste time and reduce efficiency, particularly for a small AR team. Your A/R team should have the insights and strategic process in place to prioritize invoices with higher dollar amounts.
• Multiple Currency Reconciliation: Managing multiple currencies can be a major headache for businesses with global customers.
• Reactive Dunning Processes: Slow and cumbersome dunning efforts can delay collections and prevent your team from proactively reducing aged accounts.

Key Metrics to Monitor A/R Performance and Efficacy

It is essential to measure the effectiveness and efficiency of your accounts receivable (A/R) processes by monitoring KPIs. By monitoring these metrics, you can identify areas in need of improvement and optimize your workflows in order to maximize your team’s collection efforts.

Here are some important metrics to monitor:

• Days Sales Outstanding (DSO): DSO is a measurement of how long it takes your business to receive payment after a sale. A high DSO indicates that your collection efforts are not as effective as they could be and that you may need to improve your process.
• Aging Buckets and Reports: Aged reports detail the outstanding balances of invoices and the length of time they have been past due. This report assists in determining which invoices require attention, prioritizing collection efforts, and decreasing the likelihood of bad debts.
• A/R Forecasts: A cash collection forecast predicts the amount of cash your business will collect over a specified time period. This metric enables you to anticipate cash flow shortfalls and take preventative action.
• Customer Payment Behavior: Analyzing customer payment behavior enables you to determine which customers pay on time, which consistently pay late, and which are at risk of default. This data enables you to tailor your collection efforts to each customer's payment pattern, thereby increasing the likelihood of payment.
• Collections Productivity - Collected vs. Assigned: The productivity of a collections team is measured by the number of invoices collected vs. assigned per member over a selected period of time. This metric enables you to identify inefficiencies in your A/R process and optimize individual or team performance for increased efficiency.

By monitoring these key metrics, you can identify areas for improvement, optimize your workflows, and effectively manage and collect a high volume of invoices. An AR automation solution provides a configurable dashboard that enables you to track and analyze these metrics in real-time, enabling you to make data-driven decisions to enhance your collection process.

How to Increase A/R Team Efficiency

Too many invoices can bring various challenges that can cause your A/R team to be less efficient and effective. To overcome these obstacles, businesses must implement an automated A/R platform that streamlines processes, saves time, and boosts productivity.

The majority of your time will be spent in a single system that is integrated with your ERP and CRM, and where data flows seamlessly between them. The dashboard makes it simple for an AR manager to monitor real-time data and prioritize the collections efforts of team members by dollar amount, due date, or customer.

In the meantime, the tagging feature enables all team members to make notes and easily include or exclude customers from dunning campaigns, which can be tailored to any proactive cadence that meets your business's needs. You can also convert outstanding invoices and incoming receipts from more than 130 currencies automatically to your reporting currency, so you know the exact dollar amount in real-time.

As your business grows, automation increases the efficiency and capacity of your billing and collections teams, allowing them to manage a greater volume of invoices.

By automating accounts receivable, companies can:

• Reduce DSO by 30%: By streamlining processes, you can collect payments more quickly, thereby reducing DSO and enhancing cash flow.

• Increase Daily Collections Outreach: By automating numerous manual processes, your AR team is now able to devote more time to more productive and strategic tasks, such as customer outreach and dunning campaigns.

• Eliminate Backlog of Aging Invoices: By optimizing workflows, Tesorio can help clear up any backlog of aging invoices, ensuring that cash flow remains steady.

• Triple Collections Productivity: By enhancing and streamlining processes, your AR team can 3x their collections productivity, allowing them to keep up with the demands of a rapidly expanding business.

How Effective Are Your A/R Processes?

It's important to look at your A/R team's strengths and weaknesses and figure out where improvements can be made. The longer you wait to invest in maximizing your A/R efficiency, the more your processes will cost you. An effective AR team can reduce payment delays, minimize bad debts, improve cash flow, build customer relationships, and contribute to the overall financial success of the business. As a business owner or finance professional, it is crucial to invest in the appropriate tools and technology to enable the AR team to concentrate on value-added tasks.

Tesorio is a cutting-edge AR automation solution that enables accounts receivable teams to become more productive and manage a greater volume of invoices as a business grows. By spending most of your time in a single integrated system, data flows seamlessly between your ERP and CRM, reducing the need for manual data entry and inefficient processes.

Ready to invest in your A/R team to increase efficiency? Talk to a finance expert today.