For any business, accounts receivable, particularly collections management, is a crucial function; however, it tends to be time-consuming and labor intensive in nature. If there are any delays in collections, a business can be faced with opportunity costs, carrying costs, and higher debt.
In fact, YayPay found that 93% of companies experience late payments from customers. It also found that the average payment period lasts 34 days as compared to the expected terms of 27 days. Furthermore, on average, a business writes off 1.5% of its receivables as bad debt, which results in massive expenses each year.
Accounts Receivable Challenges
Let’s quickly dive in to some of the most common challenges faced by AR departments:
1) Delayed payments
2) Paper invoices and manual processing
3) Legacy systems
4) Inaccuracy in data and inconsistency of information
5) Issue management reactively instead of proactively
6) Limited staffing
With artificial intelligence (AI), machine learning (ML), and predictive analytics on the rise, AR departments can easily resolve the above-mentioned issues. But how beneficial are such technologies in a real-life scenario?
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Opportunities Unlocked by AI & ML
Some of the key benefits the AR function can gain from implementing AI & ML include:
1) Enhanced collections strategy: You can automate the collections communications altogether, which allows the system to identify and trigger emails or messages depending on payment due dates, past due dates, and other triggers. You can also customize your automated communication, thereby freeing your staff’s time to focus on more strategic initiatives.
AI-based systems are also capable of suggesting optimal email text based on customer profile and response. The automated AR system will enable your business to resolve issues quickly, get paid faster, and improve response rate.
2) Optimized inbound request processing: An intelligent accounts receivable system is capable of responding to various inbound requests, such as processing disputes, problem solving, and enabling payments by customers. You can also prioritize inbound requests based on urgency.
An AI-based AR system will also look into the type of request, customer open balance, and customer score or credit, among other things, before deciding on what to put at the top of your AR team’s list. Furthermore, such a system can also manage simple requests, such as unsubscribe, payment link, invoice copy, and PO number requests.
3) Improves interdepartmental collaboration & decision-making: It’s crucial to have good communication and support between your sales, customer service, and other relevant teams to ensure the customer gets the best support possible. A smart AR system is capable of going through historical data and making accurate predictions regarding customer behavior and anomalies.
Using this data, the AR system can suggest the best times to maximize collections and minimize DSO; it can also help the team decide on positive and negative customer incentives, such as dynamic discounting, late payment penalties, terminating service, etc.
4) Better analytics: A smart AR system leverages AI & ML for cash forecasting, improving and monitoring the success of your collections strategy, identifying improvement areas, and increasing the transparency of the collection process.
Additionally, all the data collected by the AR system gets analyzed and converted into reports, which will be shared in the form of a dashboard, that can be used to track various performance metrics. Examples of some reports you’ll also gain access to include Collections Effectiveness Index (CEI), AR aging report, and Days Sales Outstanding (DSO).
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Your business can unlock untapped value from your AR function and in turn enhance cash flow, lower DSO, and reduce write-offs by utilizing AI & ML-based applications to manage your cash collections.
Do you need assistance with automating your accounts receivable function? QX is a leading finance and accounting service provider with businesses across industries in the US and UK, among other markets. The right use of process optimization and technology are at the core of our unique people-process-platform approach. Partner with QX to get the support you need to transform your accounts receivable function.
Originally published Nov 16, 2021 07:11:29, updated Dec 08 2021