How to Tackle Accounts Receivable Challenges Effectively?

Take a close, hard look at your finance and accounting process. Is it optimised for optimal cash flow? Is the accounts receivable management process streamlined for better efficiency and productivity and configured for scalability? Typically, the honest answer to these questions will be NO.  

Yes, some companies meet high levels of AR productivity, but even then, this is at a considerable cost to their F&A budgets. According to a global survey, only 16% of CFOs thought they were in charge of an optimally performing F&A function. We are discussing a huge problem here, which impacts every aspect of the finance department, including accounts receivable services. 

5 Accounts Receivable Challenges That You Should Focus On 

Approximately 27% of the UK’s SMEs are victims of late payments, and 55% say that late payments have increased. While this might seem like a problem for SMEs alone, it is more widespread and affects companies of all sizes.  

Payment delays, long-running customer disputes, bad customer relationships, legacy technologies, inability to efficiently track pending invoices, and a poorly maintained cash flow are just some of the many outcomes of being unable to address the many issues in your AR process.

1. High-Risk Customers

Weaknesses in your organisation’s credit control mechanism can result in your working with customers with bad financial health, which in turn reflects their inability to pay on time. This typically happens because the accounts receivable services and the credit control process are not working together.

2. Overdue Invoices

Overdue invoices are directly proportional to the number of customers with a high-risk financial profile. A growing company might find it difficult to keep chasing after such invoices and assign the time and resources required for this effort. Moreover, companies that do not invest in advanced financial software cannot keep track of delayed payments, which severely impacts cash flow.

3. A Lean Team Stretched Thin

There is a skills shortage in the UK’s accounting industry. The right talent is difficult to find, which results in finance teams being stretched to their limits. One person wears multiple hats and cannot focus on any one activity. This slows down the process of chasing overdue invoices, but it also has a larger impact on optimising the efficiency of AR. There is no time for comprehensive reporting and analysis, and the lack of meaningful insights leaves a long-term effect on strategic financial planning and optimising F&A.

4. Scalability

The difficulty of hiring talent with the necessary skill sets or the objective of keeping resource spending in check or both impacts a company’s ability to scale F&A. Considering the lack of talent in finance and accounting, onboarding and maintaining talent is a costly exercise. The accounting industry’s high churn rate also limits scalability.

5. Legacy Technology

Businesses feel complacent about accounting technology. Decision-makers do not want to upend their traditional accounting framework and are wary of investing in technologies that drive finance automation to increase efficiency. The figure below offers a ringside view of companies not leveraging automation in AR processes. 

The inability to focus on an AR-based automation strategy fuels multiple AR inefficiencies, such as impacting the speed of payments and limiting time for strategic activities such as analysis and insights. 

Read our comprehensive guide on accounts receivable and gain the insights you need to optimize your AR process and boost cash flow! 

How To Improve AR Process Efficiency? 

You cannot afford to ignore your business’s cash flow. Unpaid invoices are the bane of any growth-focused business because they are not just numbers on balance sheets, but cash trapped in those balance sheets that must be freed with efficient AR practices. 

Unfortunately, companies are still unable to maximise their AR potential. Optimising AR depends on the people at the helm of this process, the processes they subscribe to, and the technology they use. 

An efficient AR process is built on four primary pillars: 

1. Ability to assign the ideal number of skilled team members to the process and have a plan to scale in line with business needs. 

1. Speeding up the accounts receivable process by harnessing the power of technology. 

1. A people-centric approach wherein you focus on continuous customer engagement and building meaningful relationships. 

1. Staying on top of customer data helps you keep track of invoices, delayed invoices, reasons for delays, timeliness, and all other aspects of the AR cycle. 

Executing AR Efficiency with Accounts Receivable Outsourcing 

The F&A department has two big problems: a lack of scalability and reliance on a traditionally manual-oriented process. While the former can result from a reluctance to add expenses and a lack of accounting talent, the latter stems from a lack of understanding of the technology that digitises and automates financial tasks and a lack of confidence in tech-ROI. 

Here, outsourced accounts receivable management comes to the rescue, helping you address all AR challenges and adopt a forward-looking AR strategy. So, what is accounts receivable outsourcing?  

Accounts receivable outsourcing is outsourcing the gamut of accounts receivable activities to a third party to benefit from labour and cost arbitrage and process scalability. A company can outsource the entire AR process or specific parts that it believes are consuming a lot of internal staff man-hours. 

What’s the Bottom Line? 

Outsourcing allows you to scale your team quickly with high-quality resources who can take up both strategic and non-strategic AR roles. More importantly, accounts receivable outsourcing is not only about the people but also about standardising the AR process with best practices that promote efficiency and quality.  

The right outsourcing partner will help you break down silos within AR wherein the customer query resolutions team and the invoice chasing team don’t exist in isolation. Likewise, there is a synergy between credit management and the accounts receivables services team.  

However, your outsourcing partner can go beyond just helping you scale your team by integrating the power of automation throughout the AR cycle to accelerate this process so that your business never suffers from an insufficient cash flow. 

An experienced partner will support the entire AR process, including setting up an AR follow-up mechanism, maintaining an accurate sales ledger, reconciling revenue, MIS reporting, and more.  

QX uses a three-pronged approach, including AR best practices, automation, and industry expertise to deliver value throughout the AR process, and will help you set up a future-ready AR framework that provides long-term value. 

Originally published May 15, 2024 04:05:37, updated Nov 29 2024

Topics: Accounts Receivable Process, Finance & Accounting Outsourcing