Eliminating Accounts Receivable Delays

A recent study reveals that 77% of A/R teams are delayed in collecting payments on invoices. Of those surveyed, 38% reported they were sightly behind, 15% were weeks behind, and 22% were months behind. 

An accountant at a computer frustrated by accounts receivable delays.

And while A/R problems are often errantly believed to exist most commonly at large companies processing a high volume of invoices every month, the research proves that to be false. The companies that tend to be the most behind are those processing between 300 and 2,500 invoices every month.

Clearly, small businesses are the ones most likely to have A/R issues, which is a real problem because the fewer invoices a business has, the more important collecting on each one becomes. For instance, if a company is processing 10,000 invoices every month, and 50 of them are outstanding, that is only 0.5% of its revenue that has not been collected; whereas, if a company is processing 1,000 invoices, and 50 of them are outstanding, that is 5% of its revenue that is outstanding every month.

Failing to collect on outstanding accounts receivables is a serious problem because, as the CFO Selections team explains, “The longer an invoice goes without being paid, the less likely it is to get paid at all. On average, 26% of invoices are uncollectable at the three-month mark, but that number rises to 70% at six months and 90% at 12 months.”​

A/R isn’t an exciting topic, so it often gets overlooked by management, but improving accounts receivable is crucial for effective cash flow management to ensure that the business has sufficient working capital for its needs. Remember, without collecting on invoices, the extensive investment that went into generating a lead and converting it into a customer is for naught. It is the process of receiving payment that converts the time and money that went into acquiring that customer into the funds needed for the company to stay in business.  

​​So, let’s look at what is holding up A/R at so many companies and what your business can do to catch up and stay on top of A/R moving forward:

Missing Information
The most common reason for A/R delays was because of additional communication needed to resolve missing information. A missing name, address, phone number, or email address can hold up sending and/or collecting on invoices depending on the payment type being used. 

This is one area where technology can help to streamline A/R processes. By requiring all the information needed to invoice and collect payments from customers a company can streamline A/R efforts. Ecommerce retailers typically have this area locked down because they can restrict purchases if customers do not provide valid and complete payment information. However, service providers and retailers making offline sales will need to do the work upfront to ensure that they have correct payment information for invoicing purposes. The time and effort needed to do this correctly is one reason why some companies choose to outsource their accounting activities to a provider that has the dedicated staff needed to stay on top of it for them.

Fraudulent Invoices
Accounting teams understand that fraud is on the rise because they see it every day. Fraudulent invoices are one way that scammers try to take what does not belong to them. Whether it is using a stollen credit card, posing as an existing customer to make a purchase without their knowledge, or a more sophisticated accounting fraud scheme, A/R teams need to review all invoices for anything that looks suspicious and further investigate anything that raises a red flag.

While it might be tempting to relax your standards to speed up the process, that is not advised! Sure, the process takes up considerable time, but it is worth it if it prevents the company from being cheated out of their earned funds. While software exists to flag purchases that may be potentially be fraudulent, the human element cannot be understated. Educating your team about the most common types of fraud and keeping them abreast of what to look for as new fraud schemes develop is the best way to stay current with invoicing while still protecting your business.

Disputes
Invoice disputes related to discounts, missing or damaged items, and payment terms are another area that causes a significant delay for A/R teams. The same invoice processing study revealed that over half of A/R teams spend at least 25% of their time resolving invoice disputes.

This is another area where technology can help to reduce or eliminate invoicing inefficiencies. Collaborative payment portals and payment acceptance technologies allow for better internal communication between teams to resolve these issues more quickly, to not only increase cash flow but also improve customer service.
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When you need bookkeeping help, please reach out to us. Our team of experienced accountants has the resources needed to come alongside your business and help it get caught up. We offer a variety of different less than full-time engagement options (part-time bookkeeping, interim accounting help, accounting work for special projects) either virtually or on-site to fit your needs. Contact us to find out more about our outsourced bookkeeping and accounting services today!