5 Common Accounts Receivable Problems And Their Solutions

Common Accounts Receivable Problems

Published on January 31st, 2023

Managing your accounts receivable (AR) is crucial to running a business smoothly. Although managing AR is tedious and time-consuming, most organizations have not digitized the AR process to avoid inconveniences and minimize losses. According to Business Insider, inadequate cash flow is the main reason most businesses fail.

Therefore, it is important to identify and fix accounts receivable problems to guarantee the financial safety of your business. Here are five common accounts receivable challenges and how to solve them.

1. Calculating And Managing Days Sales Outstanding (DSO)

DSO refers to the average time it takes to get paid after selling goods on credit. If you have a high DSO, there is a long duration of time between sale and collection, which can affect how the business runs.

Companies should consider their budget allocation plan when measuring DSO to avoid low liquidity. Therefore, how can you reduce DSO? One of the ways to reduce DSO is using a convenient debt collection strategy, or DSO automation using Upflow. For example, instead of sending invoices by mail, you should consider digitizing and sending them via email to save time.

Secondly, you can add more payment options, including electronic payment options like ACH transfers and credit cards. Thirdly, consider offering incentives like discounts or offers to your customers if they pay on time. Also, you can impose penalties on late-paying customers to ensure they adhere to agreed payment terms.

2. Data Entry Errors

Data entry errors are common, especially if the process is manual. If your AR team sends numerous invoices daily, there is a high possibility of data entry errors and invoice mistakes that can affect the business’s everyday operations.

For example, invoice errors can delay payments affecting cash flow and budget. Occasionally, invoice errors can cause disputes, financial losses, or damage your company’s reputation. Mailing invoices takes time, and if there is an error, it won’t be identified and corrected on time.

Remember, until the customer has identified the error and it is corrected/fixed, they will not pay, thus affecting the DSO. Therefore, consider investing in Accounts Receivable automation to minimize errors and avoid potential financial loss.

3. Accepting Electronic Payments

Nowadays, most people rely on electronic payment methods for convenience reasons. Processing checks manually is time-consuming, expensive, error-prone, and affects cash flow.

If your business cannot accept electronic payments due to a lack of processing technology, it affects your AR team and customers. While your AR management team will spend a lot of time checking and processing payments, you will neglect your customer’s experience because they cannot use their preferred payment method. Companies should accept different electronic payment methods to improve customers’ experience.

4. Cash Management

Late payments are one of the challenges affecting a business’s cash flow. It is difficult for a business to balance cash and access working capital without the timely collection of invoices.

Limited cash flow can affect the company’s productivity and profitability, especially if the AR management team is not trying to rectify the situation. If your accounts receivable team deals with a high volume of paper checks, cash flow is a problem due to the time it takes to process payments.

To remedy the problem, companies should accept online payments because they can be processed in real-time, saving time and money in the long run.

5. Automation

Implementing accounts receivable automation in business is crucial with the current technological advancements.

However, it is a complicated problem because it requires vast skills and careful planning. However, if you successfully implement automation, you will solve an array of AR problems like invoice error and cash flow.

Your accounts receivable management team should plan in advance to avoid inconveniencing customers or facing issues down the road.

It is essential to notify your customers and hire a reputable automation expert to oversee the entire process. Remember, with an automation system, you can improve your ledger, set up recurring invoicing schedules, and regularly update customers’ data.

The Takeaway

The above-mentioned accounts receivable problems significantly affect your business by reducing team efficiency, delaying cash flow, and affecting customer relations.

Luckily, automation is an ideal solution to optimize accounts receivables. Besides saving time, automation improves accuracy and facilitates integration with other enterprise resource planning (ERP) systems. With the right tool, AR processing is fast, reliable, and more efficient.

Finally, it is crucial to consider an AR automation solution that will suit your budget and business needs to grow your business.

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