We’re all guilty of telling ourselves little lies in both our personal lives and our professional ones. Sometimes these lies are intentional, more like excuses I suppose, and sometimes we may not even know we’re doing it. In the end it doesn’t matter, because whether you know you’re lying to yourself or not, it’s still making an impact. We have found in our experience that many times, the people responsible for accounts receivable cash flow are unknowingly lying to themselves but it’s still costing them. The first step in turning things around is identifying the problem. Many A/R collection employees are unknowingly telling themselves one (or more) of these threee lies that are silently killing accounts receivable cash flow.
1. It’s the customers fault
It’s pretty easy to immediately blame a customer for late payment and let yourself off the hook, it is the customer’s bill after all, right? You might tell yourself the customer is just forgetful, is trying to avoid payment, or is not reaching out to ask questions- and you may be right! The lie comes when we tell ourselves, “This is not my fault.”
Maybe all of those things are true, but when is the last time you sent a reminder, called to check on the payment status, or followed up to see if there were any questions or concerns about the invoice in question? Many collectors don’t do any of those things until after the invoice has already gone past due. While it may be the customer’s bill, it’s still your job to collect it on time- a task much easier said than done as you surely know. A/R management is a huge, time consuming job; you have many customers, tons of invoices, and plenty of other things you need to get done in a day which makes it pretty much impossible to find time to research each invoice, send all those reminder emails, and dial up all of your customers before the invoice comes due.
Rather than going along like this though, ask yourself why you don’t have time to do all of this. Is it because you do not have a large enough A/R staff? Or is it because you are in need of A/R automation to help you become more productive?
Each choice has its own set of pros and cons, learn more in our A/R staffing guide can help you make that determination.
2. We didn’t do anything wrong
Your customers know they have to pay you and a majority of them want to pay you on time, but something is keeping them from doing that. Often times the company collecting the invoice is the problem. In fact, 46% of late payments are late because of administrative errors, not a customer being unwilling or unable to pay.
Mistakes such as an incorrect purchase order or invoice amount can significantly delay payment as it will require extra work on the customer’s part to get it done. The harder it is for them to pay you, the more they are going to put it off. Another common problem is sending the invoice late which gives the customer a smaller window of time to pay you within terms, or sending it in the wrong format. You can fix all of this quite easily. Click here to learn a few best practices to speed up invoicing, increase invoice accuracy, and increase accounts receivable cash flow.
3. We don’t have a collection problem
If you offer credit terms then you probably have an accounts receivable collections problem and you don’t even realize the negative impact that it’s having on your bottom line and your accounts receivable cash flow.
Most companies sell on 30 day credit terms, but if you analyze your average days-to-pay (ADP) or days sales outstanding (DSO) you’ll probably be shocked to find that customers are taking a lot longer to pay their bills. In fact, research shows that most companies take between 45-60 days to collect on invoices. By developing accounts receivable KPI’s you can keep an eye on your accounts receivable performance and give yourself insight into potential problems before they become a reality.
When was the last time you sat down and analyzed your accounts receivable performance? Here are 4 quick ways to see where you stand.
So now that we’ve helped you identify potential reasons for your accounts receivable cash flow problems, how are you going to fix it? We’ve put together an entire library of tools to help you including white papers, educational webinars, case studies, brochures, and more. Enter below.