Not All AR Tasks are Created Equal. These are the Most Important

Shaun Jex
finance team

Despite making many advances, scientists still haven’t figured out how to add more hours to the day. Fortunately, technology has produced plenty of tools to help you get the most out of the hours you have. 

This is particularly important in accounts receivable, where a company’s financial health is directly tied to the amount of time it takes to get paid.

Luckily, there are a few best practices and tools that can make the process more effective, ensuring a healthy Days Sales Outstanding (DSO) and, by extension, protecting our cash flow. 

Aging Reports AR

Organize Your Invoices Into Buckets

The first step when organizing AR is to break the invoices into aging buckets. Typically, this will be done as follows:

  • 1-30 days past due
  • 31-60 days past due
  • 61-90 days past due
  • 91-120 days past due
  • 121 days past due and over

As a general rule, it’s best to tackle the accounts from the most overdue to the most recent.

Getting the data to create these buckets can be labor intensive if you are still relying on manual processes. To create the report, individuals must typically download the aging data from their accounting software, analyze it, and then input the information into a spreadsheet that can be shared.

Employees spend as much as 19% of their week simply looking for information.

In contrast, automation solutions provide access to dashboards with in-depth reporting available at the push of a button. By integrating with your ERP, finding the data and metrics you need has never been easier.

Predictive Analytics

Take a Peek Into the Future

Knowing which accounts pose a greater risk of late payments helps accounts receivable representatives prioritize their day. After all, there’s no point in expending as much energy on accounts that regularly pay on time as those who are likely to drag their feet.

Automation solutions are integrating artificial intelligence and machine learning to facilitate this process. With YayPay, the software is equipped with two specific algorithms for this purpose. The first predicts on-time payments by examining current invoices and analyzing if they are likely to be paid before the due date. The second is used to assess past due invoices and predict how late they are likely to be.

With up to 94% accuracy, YayPay’s predictive analytics help accounts receivable teams proactively approach receivables.

Grab AR automation by the Long-Tail

While every account and invoice is important to your business, some are unquestionably more important than others. That is to say, your team probably should not spend as much time and effort pursuing payment on a hundred-dollar invoice as they would on one for $100,000.

The 80/20 rule is a widely accepted model which suggests that 80% of your revenue likely comes from 20% of your customers. Then, there are the hundreds or even thousands of smaller transactions that make up the remainder. These are known as long-tail invoices. On a graph measuring ROI per Customer against customer base, they create the long, narrow portion of the chart.

Using the long-tail approach involves automating accounts receivable for all of the lower value invoices, allowing the team to focus on those higher dollar transactions, which may require careful and considerate management.

You can also apply the same strategy to your team workflow. A typical day in the life of an AR exec is made up of a handful of business-critical priorities, and a number of smaller “long-tail tasks” such as data entry, composing and sending out emails, answering customer questions, and so on.

Allowing an automation solution to manage these mundane jobs frees up your AR team to focus on activities that will actively improve DSO and cash flow. The software automatically sends out invoices, as well as follow-up reminders until the bill is paid. The self-service portal empowers customers to make payments, as well as view their invoices, and quickly raise any disputes they may have.

The receivables team can also use the extra time to focus on things such as improving your collections strategy, and ensuring your account management aligns with the sales team’s targets.

For more information on how to strategically approach accounts receivable, check out YayPay’s e-book: Become a Revenue Hero: Credit 2 Cash.