3 Ways to Move Your AR Department Out of the Dark Ages

Eugene Vyborov

shutterstock_580544344Consider all the tasks your team must complete to get cash in the door. Every month they create, print and mail invoices. Not all payments come in on time, so your staff must identify clients who need follow up. That usually requires running AR aging reports and sorting them manually to prioritize the calls. Then there are phone calls to be made, followed by waiting for payment and another round of follow-up calls - just in time for the next month’s invoicing cycle.

If that sounds time consuming and tedious, you are absolutely right. The traditional workflow creates a considerable challenge for small accounting teams with a multitude of other responsibilities to juggle. How can you use the resources you have to get the optimal balance of efforts and results?

In our experience, it is best to begin with strategically aligning your back office functions to support the rest of the company. Here is a three-step blueprint to help you ask the right questions and make small changes within your company for a quicker collection cycle and stronger client relationships.

Step 1: Set clear expectations

Free-flow let’s-figure-it-out-as-we-go processes may work well enough for a start-up, but not for a growing company with multiple departments. If you are pursuing strategic alignment between procedures and company goals, you will want to dust off that Policy & Procedure Manual. Have you documented all the critical procedures and decision-making flows to support your teams as they do their jobs? Does your written policy reflect actual practice? Does it have buy-in from team leaders and managers? Can it be improved?

You may be surprised to learn that your best resources in this inquiry are your newest hires. As new members of your team go through training on their tasks, seek their feedback. Encourage them to bring up the instances where the actual practice diverges from written policy. Once you identify the gaps, update the procedure manual to reflect the latest thinking and way of doing things.

Step 2: Ensure disciplined execution

Hiring and retaining the right people is your first step towards strong execution of a plan. However, even the best people will struggle and fail if they aren’t adequately supported in performing their jobs. From maintaining a reasonable allocation of accounts to investing in the right mix of technology tools, you have the ability to set your people up for success. Be sure to re-assess incentives and align them with the right success metrics to encourage and inspire desirable actions.

Step 3: Measure results and take action

You cannot create meaningful change if you don’t know what progress would look like. There is a variety of metrics worth identifying and tracking, including Collection Effectiveness Index (CEI), Days Sales Outstanding (DSO), Change in Collection Productivity (CCP) and others. Analysis of early results should go deeper than a binary “benchmark met / benchmark not met” assessment. What is the root cause for the variance? What does the trend tell you? What can be done?

A modern AR office: the case for strategic alignment

In your efforts to create a faster collection cycle and boost the productivity of your AR team, don’t overlook the benefits of continued training and technology re-assessment. Better tools are becoming available constantly. If your team is still relying on legacy system downloads duct-taped together with Excel reports, it may be time to revisit your technology solutions. You may find that a specialized platform like YayPay (try the AR savings calculator to get a quick idea of efficiency gains) will seamlessly plug into your existing workflow, create efficiencies and save you money.

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