Supercharge Your Accounts Receivable Process: How to Get Paid Faster

February 28, 2023 Theresa Rex

CFO looking to improve accounts receivable working on new invoicing method

Whoever coined the truism "nothing in life is free" clearly never had to chase overdue invoices, keep close tabs on aging collections, improve an accounts receivable process, or navigate the tricky exercise of collecting an outstanding balance without sacrificing good customer relations. Anyone who has ever had to write off an uncollectible debt knows otherwise — and has a process for recording the general ledger entry to prove it.

Getting paid in a timely manner (or ideally, early!) has an obvious positive impact on the bottom line. It keeps cash flowing, reduces reporting headaches and enables you to make good on your own outstanding obligations all while spending time on work that's much more valuable than invoice chasing. It also starts long before collections, with an optimized end-to-end accounts receivable process.

For all the listed reasons, improving the efficiency of accounts receivable should be top-of-mind for companies that want to grow irrespective of broader economic conditions. Here are some tips for how to get paid faster with key improvements to accounts receivable.

Start Here: Document & Systematize Your Accounts Receivable Process

The first step to more effective accounts receivable process management is understanding its current iteration. Aim to first take an objective look at the entire order-to-cash process your organization uses, from customer onboarding to how an order is submitted and fulfilled to the moment the invoice is closed and recorded in the general ledger.

Sometimes, the simple act of objective documentation provides clarity into ways the entire process can be improved. Delays due to disparate systems or task redundancies may become apparent. Other times, you may have to dig a bit deeper: perhaps you will learn that senior team members are diverting their attention to basic bookkeeping tasks or learn that an automation error has resulted in payment reminders that are issued for 90 days instead of the intended 45.

eBook: Future-Proof Your Finance Department: How to Document Your Accounting Processes

You won't know until you've put the entire process down "on paper" and pulled key stakeholders in to help scrutinize it for potential improvement opportunities. This process should be revisited frequently enough to update changes in procedure and catch costly mistakes early enough to be circumvented. Your goal here should be to develop a clear and well-understood AR process internally.

Choose the Right Metric to Improve: Accounts Receivable Turnover Ratio in Order-to-Cash

virtual accountant working on accounts receivableWhen the goal is to see an overall reduction in the time an invoice is issued to the time it's paid — in other words, the "meat" of the order-to-cash cycle — accounts receivable turnover ratio is the metric to watch. If you'd like to see how this metric is calculated and learn more about what role it can play in finance function strategy and goal setting, check out our Dashboard for Strategic Controllers: Essential KPIs.

In short, this number represents the difference in invoices issued to invoices paid, and in general, the higher it is, the healthier your accounts receivable process tends to be. But when this number trails behind or stagnates, it tends to represent three areas of accounts receivable that are ripe for improvement: credit or repayment terms, collections processes, reporting procedures or a combination of the three.

Seek Internal Alignment on Accounts Receivable

Once you've documented your accounts receivable process, it's time to get your house in order. Before working on improvements that induce clients to pay faster, align your team on what needs to happen internally to streamline the accounts receivable process. Emphasize that the process is more than just purely supportive — it's collaborative.

Consider sales, for instance. Is the sales team aligned with finance when it comes to the kind of credit terms you're prepared to extend? Extending credit more flexibly than the established baseline may help to close more accounts, but it can spell trouble down the road if customers end up struggling to meet their obligations.

The finance team can also introduce internal improvements after a thorough exploration of external factors like competitor processes and industry benchmarks. Shorter repayment terms or the opportunity to simplify fee structures may become apparent with just a little digging.

Crucially, a documented set of universal crediting, onboarding, invoicing and recording procedures means everyone stays on the same page and there's never a need to ask "what next?" Systematizing and centralizing this information and introducing transparency into internal accounts receivable communication keeps the entire process efficient and forward-moving to save time and effort in the end.

Invoicing Improvements Can Improve Customer Relationships, Too

When it comes to maintaining strong customer relationships, the entire accounts receivable process can feel fraught: asking for prompt repayment can just feel awkward, even though it's literally just business. In fact, making improvements to the customer-facing steps of the accounts receivable process offers opportunities to build stronger customer relationships along the way.

  • Start early and touch base often: When onboarding customers, don't tack repayment information onto the end of the onboarding conversation. Be open about when customers can expect invoices and then follow through.

  • Introduce or increase clarity: Getting aligned internally will make it much easier to be transparent externally. Include repayment terms on the invoices you send and make sure customers know how those terms change if payment is late.

  • Offer discounts: Whether it's for early payment or for using a preferred payment method like a credit card, reward customers for staying on top of their accounts by offering discounts and incentives as readily as you require late fees and penalties.

  • Leverage technology: Automated payment reminders and cloud-based account management don't have to be depersonalizing. Instead, you can differentiate your customer experience by putting human capital toward relationship-building conversations and leveraging technology for reminders and accepting payment.

Making it as easy and painless as possible to meet obligations and incentivizing doing it early has obvious benefits for the customer relationships you've worked hard to build and maintain. Think about it: you can love a service or product, but if paying for it is headache-inducing and tough to track, it's going to change the way you see the company that offers it. It's no different in business relationships.

Revisit Your Collections Process and Efforts

It's impossible to talk about ways to improve accounts receivable without talking about collections, too. Even the best and most creditworthy customer can fall behind. It may come down to unpredictable market forces (pandemic, anyone?) or a simple oversight — if enough time has elapsed almost anyone can forget a due date.

Collections are most often associated with closing out a receivable and ultimately getting paid, but if the rest of your process is optimized, it shouldn't take up as much bandwidth in your accounts receivable process as it likely does right now. Nevertheless, there are ways to improve this stage of the process, too:

  • Pay attention to the right metrics: Look at days sales outstanding (DSO), aging reports, and average payment delays to identify accounts that are historically difficult to collect payment on or improvement opportunities for repayment terms and schedules.

  • Prioritize effectively: If you spot a customer that frequently pays late but in full, you have an opportunity to customize that client's experience. If you see multiple aging accounts assigned to a single manager, perhaps that's an opportunity to tweak employee experience or professional development.

  • Reconcile frequently: clearing fulfilled accounts and updating the balance sheet and general ledger appropriately ensures the information that you're working with is accurate and up-to-date, giving you better insight into how your improvement and collections efforts are working (or not!)

Read more: Five Reasons Why Choosing the Right Finance KPIs Really Matters

Supercharge Accounts Receivable With the Right Team

board meeting talking about ways to improve accounts receivableIn the end, getting paid on time comes down to making the right improvements and leveraging the right tools. At every step along the way — from documentation to optimization — you can benefit from a knowledgeable partner with a proven track record for transforming accounts receivable from a cost center to a value driver.

Outsourcing AR with the right partner is a great way to do just that, allowing you to reinvest the time spent on onboarding, invoicing, account management and collections into higher-value accounting tasks that better position your organization for growth.

When you partner with Personiv to improve your accounts receivable process, you can unlock new efficiencies all across the finance function and stay a step ahead of your competitors and stay future-focused with your accounting strategy. Get in touch to learn how we can help make it happen, starting today.

Previous Article
Personiv Ranks Among Top 200 Global Outsourcing Firms Worldwide
Personiv Ranks Among Top 200 Global Outsourcing Firms Worldwide

We're proud to announce that Personiv, a global leader in finance and accounting process outsourcing, was r...

Next Article
Financial Decision-Making Frameworks for High-Growth Businesses
Financial Decision-Making Frameworks for High-Growth Businesses

Finance leaders often face a unique set of challenges when it comes to managing risk and making informed fi...