Best practices for Fast and Effective Accounts Receivable Collections

Sarah-Jayne Martin

Learn how to establish a world-class collections process that improves payment speed and the customer experience

 

What defines a good collections process?

There are a number of KPIs used to measure success. Average days delinquent (ADD), collection effective index (CEI) and days sales outstanding (DSO), to name a few. But let’s focus on the big picture. A good collections process is one that brings money into the business quickly to strengthen cash flow and deliver working capital improvements.

The challenge businesses encounter is that this goal of bringing money in quickly appears to be at odds with delivering a positive customer experience. How can you make customers pay faster while keeping them happy? Organizations often feel forced to weigh up these two priorities against one another. More often than not, the collections priority takes precedence. Understandably, this decision is rationalized by the fact that the AR team is measured by the cash they collect and not by customer satisfaction (CSAT) results. 

In order to establish a truly world-class collections process, you need to adopt a more intelligent approach. One that is repeatable and sustainable. It needs to fundamentally change the way your team collects cash from customers, which in turn changes the way your customers view and interact with your business. This is what improves payment behavior in the long-term, as it strengthens customer relationships and deepens trust. 

The invoice communication is a perfect customer touchpoint

Consider a number of your company’s typical customer communications. When your organization sends marketing emails, surveys, promotions, or offers to your customers, these often end up being redirected to spam or junk folders, or they are simply deleted. The invoice communication is a perfect customer touchpoint because it is almost guaranteed to be received.

Viewing it from this perspective, it’s clear that a direct and frequent communication channel with your customer is a valuable opportunity. You can use this channel to form a deeper connection with your customer, strengthen the reputation of your business, and ultimately, ensure they make payments faster. But to do this, you need to make your customer communications as effective as possible.

“I’m a finance professional - not a marketing guru! What do I know about effective communication?”

It turns out we know quite a lot more than you may think. It’s self-evident that effective communication is key to building customer intimacy and brand loyalty and these two things have a big impact on whether a customer stays with your organization or decides to shop elsewhere. If you reflect on a time when you received great customer service and felt valued, it’s likely there was a clear reason for why it was so positive:

  • Perhaps the company personalized their approach with you, doing something as simple as using your name and treating you like a real person? 
  • Perhaps they made the buying process simple and intuitive, providing all the information required for you to easily make a decision?
  • Or perhaps what started off as a negative experience was flipped on its head, by a person listening to your feedback, empathizing, and reacting accordingly?

At the heart of all of these instances is effective communication. This is what creates a smooth, personalized, and enjoyable experience. This makes people feel appreciated and lets them know that their time is respected. These key components of great customer service ultimately translate into faster payments and decreased customer churn.

Effective collections communication - eight best practices

There are eight best practices you can use to optimize your communication within the dunning process.

  1. Use personalized communications that align with details in your ERP or CRM.
  2. Brand your communications so they have the same look and feel as other company communications – keep things consistent and promote your brand. Tone is also important.
  3. Introduce consistency into your communications, making sure your touchpoints are regular, but not overwhelming – otherwise emails will go to trash.
  4. Send early communications (pre due date) as a friendly reminder. These give the customer time to review invoices ahead of the due date so discrepancies can be dealt with.
  5. Follow up your emails using a tactical cadence – emails should be sent no more than every 15 days during the first 60 days. The tone can remain friendly but become slightly more urgent as the invoice ages. After 60 days – your tone needs to be more aggressive. 
  6. Your dunning process should be managed well internally through regular touchpoints with sales, or client success, at specific points during the cycle. A sales rep does not want to hear from their client that they got a threatening email when they are not aware that there is a valid reason for the delayed payment. This creates a very poor customer experience and a challenging situation internally. 
  7. All dunning communications should be informative and actionable, providing all the information the client needs to act; remittance details, link to a payment portal (if applicable), and phone numbers or contact emails for any questions they may have.
  8. And finally, dunning workflows should be customized by customer type – for example, this could mean using higher touchpoints and faster escalation for risky accounts while customers that pay on time enjoy a “white glove” service, receiving friendly reminders and a personal phone call before invoices are past due. There is no good reason to use the same “one size fits all” approach for every customer.

Eight essential benefits of automation in the dunning process

The methods mentioned above don’t need to be enabled by technology. However, in today’s world, every finance team should look to invest in an automated collection tool that enables them to upgrade their dunning process and deliver a consistent, quality customer experience. 

Digital experiences are fast becoming the rule, not the exception. The organizations that offer these to customers are the ones that will remain competitive. Here are eight benefits you can expect when you invest in an automated AR solution.

  1. You can set communications on an automatic cadence that is consistent and customizable. 
  2. You can provide a customer portal which gives your customers the convenience to check and manage their accounts on their own time. 
  3. You can create customized communication workflows to offer incentives – such as future discounts for fast payments.
  4. You can simplify the disputes and resolution process and make SLAs transparent for customers.
  5. You can confirm - or decline - payments immediately. You can also introduce a level of personalization when payment is confirmed, such as adding a “thank you” note.
  6. You can ensure important notifications are always visible for customers using smart rules - such as approaching a credit limit or credit card expiration dates. 
  7. You can maintain a constant dialogue with customers. Both customers and company can easily share communications such as a promise to pay, a thank you note, a notice of missed payment etc.
  8. And lastly, you can establish a payment plan that provides flexibility and customer-centric options on a case by case basis. This is critical in today’s volatile economy.

Having the ability to offer these benefits helps you compete in a highly competitive and crowded market. A recent statistic from Salesforce revealed that 54% of customers think that companies need to fundamentally transform how they engage with their customers and there are few departments that are challenged by the customer experience as much as accounts receivable. Effective communication in your collections process - supported by smart automation - is the solution that helps take you out of this statistic.

 

If you want more guidance on this subject, feel free to download our recent webinar in the "How to Master AR Series" - Drive Fast and Effective Collections.

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