4 Risky Accounts Receivable Practices To Ditch in 2022

George Green
Four risky accounts receivable practices to ditch to improve cash flow

Finance leaders can’t predict what’s next, but they can strengthen operations by ditching these four risky accounts receivable practices.

Great Scott, it’s 2022! If Dr. Emmett Brown was here, he’d be flabbergasted to learn that we are now seven years on from 2015, the year he time-traveled to with Marty in the second Back to the Future installment.

But instead of flying cars and hoverboards, we are surrounded by pandemic-related pressures and economic uncertainty. Once again, organizations must focus on protecting working capital. Today, 54% of CFOs consider liquidity and cash management to be a top challenge this statistic will only increase if the economy experiences even further disruption.

cash management

54% of CFOs consider liquidity and cash management to be a top challenge

Finance leaders can’t predict what’s next, but they can strengthen operations by ditching these four risky accounts receivable practices. Doing so will help put them in the best position to ride out economic uncertainty.

Not so Excel-lent Reporting

In a 2021 IDC survey, almost 50% of respondents said they continue to rely on Excel for AR reporting, despite studies finding that up to 90% of spreadsheets contain errors. These tools have a place in any company, but should they really be what’s used to track and manage revenue?

Take aging reports as an example. Essential for companies to review their open receivables and to gauge how long balances have been outstanding, aging reports highlight accounts receivable risk and help teams determine which customers to prioritize in order to mitigate late payments.

When teams use Excel to manage these reports, they face a flurry of challenges. Creating them is time-consuming. But worse still, they don’t contain real-time data, as the only way they can be updated is by passing them back and forth and the numbers are constantly changing. This means that information can often be inaccurate, which has the knock-on effect of making it more difficult to manage tasks efficiently.

aging report

Automated AR platforms capture real-time aging reports. See how it works in this video

If finance teams want to stay on top of receivables in today’s unpredictable environment, taking advantage of automated AR platforms that capture real-time aging reports is an easy win. Such solutions provide a live status of receivables that allows teams to take a deep-dive into their data at any time, and from anywhere. They can also be assured that the information they are working with is always up to date.

Medieval Manual Collections 

It may be 2022, but some companies are stuck in the dark ages. Those that risk not automating their collections process are wasting money. It takes 67% longer to follow up on overdue payments in a manual process, which means higher operating costs as well as slower collection of payments.

ancient times

Manual collections take 67% longer, leaving your business in the dark ages

Effective collections are at the heart of revenue generation. When this process is automated, companies experience three key benefits:

  • Speed: With automation, collections are completed up to 34% faster. Customers can be contacted on time —every time —and this consistent experience results in invoices being processed and paid faster. According to PYMNTS, 62% of firms that adopted automation benefited from improved DSO (Days Sales Outstanding).
  • Convenience: AR teams can save time and manual effort by automating responses to simple inbound requests from customers. YayPay uses machine learning to read questions and send answers to ensure quick resolution. An example of a standard customer request could be asking for an invoice copy.
  • Clarity: By automating collections, a systematic approach is established. Customers learn what to expect from you and become reliant on your reminders and updates. 76% of B2B buyers say inconsistent information is a key AR pain point; if you automate communications, you are far less likely to face this problem as all your touchpoints are tracked.

Flawed Financial Forecasting

A critical element of business health this year will be financial and payment projections. The disruption caused by the pandemic has made it even more vital to keep a real-time pulse on your company’s current economic status and know where it’s headed.

In an Accenture survey, 99% of CFOs and finance leaders said that operating with real-time data is essential to navigating disruptions. 68% believe that real-time financial modeling is critical to better business decision-making and more accurate forecasting models.

Businesses need tools beyond spreadsheets to effectively gather, model and consume information. Similar to aging reports, they cannot rely on outdated software.

Machine learning

YayPay uses machine learning to generate accurate predictions on when invoices will be paid

An AR platform such as YayPay enables dynamic planning and cross-departmental teamwork. Companies can use YayPay to access consolidated data in real-time, and collaboratively analyze the information they need to build financial forecasts. The platform also uses machine learning algorithms to assess customer payment behavior and generate accurate predictions on when individual invoices will be paid. This helps companies visualize their future cash position and prepare for unexpected circumstances. Overall, the accuracy rate ranges from 83% to 94%.

Costly Check Payments

According to a survey released this month, 25% of B2B payments are still made by check. 

To be fair, it’s difficult to retire check payments. ERPs are set up with checks as the default payment method, and many finance professionals have used paper payments for decades.

However, despite the temptation to stick with manual check processing, doing so poses significant risks to a business’s bottom line. Companies that process paper checks are frequent targets for fraud, with 66% of organizations experiencing problems of this nature when processing payments manually.

Costliness is also another consideration, as a single check takes between $4 to $20 to process. In fact, businesses in the US spend almost $160 billion a year just to send and receive paper invoices and payments.

Last but not least, it takes too long. Checks can take up to 10 business days to clear from when they are sent, and this is significantly longer than digital payment methods.

Today, 51% of firms are planning to digitize payments within the next few months. They recognize the need to eliminate payment delays and offer the digital experience that today’s customers expect. Using YayPay, companies can provide their customers with a self-service payment portal that allows secure access to all of their account information at any time and from anywhere. It also contains payment options including wire transfer, ACH and credit card. This means customers can manage their businesses flexibly and your team saves time on collections. The result? An increase in on-time payments and improved cash flow for your business.

Ditch the Risks

It’s time to do away with AR practices that are curbing your cash flow and adding to your team’s workload. Contact us today to learn how easily automation can be integrated into your accounts receivable to fast-track tasks, strengthen cash flow and deliver the experience your customers expect.