Accounts receivable management: 5 tips to improve your AR process

If your Days Sales Outstanding (DSO) is rising and cash conversion is slow, it's time to investigate. For mid-market businesses, these challenges typically arise from a mix of client actions and internal process inefficiencies. Identifying these specific issues is key to making improvements where they'll have the biggest effect.

This guide reveals how finance teams at growing companies transform accounts receivable from a problem into a strategic asset.

What is accounts receivable management?

Accounts receivable (AR) management is the strategic coordination of processes, from invoicing to collections, designed to optimize cash flow and mitigate financial risk.

The goal is to reduce Days Sales Outstanding (DSO) and reduce Average Days Delinquent (ADD), ultimately transforming AR from a balance sheet item into a powerful driver for working capital efficiency and sustained growth.

5 tips to improve your accounts receivable management

Efficient accounts receivable management is critical for maintaining healthy cash flow and ensuring the financial stability of your business.

By adopting strategic best practices, companies can significantly reduce late payments, improve customer relationships, and free up valuable capital. 

Here are 5 essential strategies to effectively manage your accounts receivable.

1. Make it easy for your customers to pay you

Offering multiple payment collection options makes it convenient for customers to pay, such as an online payment portal, credit cards, debit cards, electronic funds transfer, or checks.

Ensure that your accounts receivable management system includes a seamless payment process by integrating payment gateways with your accounting software or website to allow customers to pay securely and easily. 

Provide real-time payment confirmation to customers upon successful payment. Accounts receivable software like Chaser helps you set up a payment portal for your business by providing a dedicated platform for customers to make payments, thereby contributing to the overall goal of reducing late payments and improving cash flow.

And with a thank you note that is sent automatically to your customer after payment to thank them for their business, while also establishing a good relationship, which ultimately leads to less friction between the customer and your company.

2. Automate your accounts receivable process

Manual accounts receivable processes are time-consuming and prone to errors. Automating tasks like invoice generation, payment reminders, and reconciliation can significantly improve efficiency. Software solutions can handle these repetitive tasks, freeing up your finance team to focus on more strategic initiatives. 

For instance, an automated system can schedule and send personalized payment reminders based on predefined rules, ensuring consistent follow-up without manual intervention.

Chaser excels in this area by automating your entire credit control process. It allows you to create customizable chasing schedules, ensuring that reminders are sent out promptly before, on, and after the due date. 

This automation minimizes the risk of human error and ensures that no payment is overlooked, contributing to a substantial reduction in late payments.

3. Personalize your communication

Generic payment reminders often fall flat. Tailoring your communication based on customer history, payment behavior, and relationship can dramatically increase effectiveness.

This means more than just addressing them by name; it involves crafting messages that resonate and offer solutions, not just demands. 

Accounts receivable software can help segment customers and create personalized communication flows. For example, customers who consistently pay late might receive a different series of reminders or even a direct call to discuss payment plans, whereas prompt payers might receive less frequent, more appreciative communication. 

Chaser's advanced personalization features allow you to customize email templates with dynamic fields, including customer names, invoice details, and even personalized messages from specific team members.

This level of personalization makes customers feel valued and can significantly improve their responsiveness to payment reminders, leading to faster payments and stronger customer relationships.

4. Leverage data and analytics

Data is king when it comes to effective accounts receivable management. Tracking key metrics like DSO, ADD, and collection effectiveness index (CEI) provides valuable insights into your AR performance.

Analyzing this data can help identify trends, pinpoint problem areas, and forecast cash flow more accurately. 

Accounts receivable software often comes equipped with robust reporting and analytics capabilities. These tools can generate dashboards that visualize your AR health, allowing you to quickly spot anomalies and make data-driven decisions.

Chaser provides comprehensive AR reporting and analytics, giving finance leaders a real-time overview of their AR performance. 

You can track key metrics, identify your best and worst payers, and understand the impact of your chasing efforts.

This data empowers you to optimize your credit control strategies, identify potential bad debts early, and improve overall cash flow forecasting.

5. Implement a robust dispute resolution process

Disputes are a common cause of payment delays. Having a clear and efficient process for addressing customer queries and resolving discrepancies is vital. This includes establishing clear communication channels, assigning ownership of disputes, and setting timelines for resolution.

When disputes are handled quickly and professionally, it builds customer trust and prevents payment delays from escalating. 

Accounts receivable software can help manage disputes by providing a centralized platform for tracking communications, documenting resolutions, and ensuring follow-up.

While Chaser primarily focuses on automated chasing, its comprehensive communication logs and ability to integrate with existing accounting systems can indirectly aid in dispute resolution. 

By providing a clear record of all communications related to an invoice, it helps your team quickly access relevant information when a dispute arises, leading to faster resolution and improved customer satisfaction.

5 steps of the accounts receivable management process

The accounts receivable management process involves 5 critical steps, each contributing to efficient cash flow and reduced financial risk. AR software significantly enhances each stage, offering advanced capabilities for robust financial health.

1. Invoicing and order fulfillment

This initial step involves generating and sending accurate invoices promptly. Modern AR software integrates seamlessly with CRM and ERP systems, automating invoice generation and dispatch. 

For global operations, AR software can manage multi-currency invoicing and adhere to varied regional tax regulations, ensuring compliance and reducing errors.

This AR automation directly supports the "Make it easy for your customers to pay you" best practice by ensuring accurate and timely invoice delivery, a prerequisite for prompt payment.

2. Payment processing

Once invoices are sent, the next step is processing incoming payments efficiently. AR software provides secure online payment portals, supporting diverse payment methods like credit cards, electronic transfers, and even regional-specific options (e.g., SEPA in Europe, ACH in North America). 

In multi-regulatory environments, the software ensures payments are processed according to local financial laws and reporting standards.

This ties into making it easy for customers to pay and provides real-time payment confirmation, vital for customer satisfaction and cash flow accuracy.

3. Cash application and reconciliation

Accurately applying incoming payments to outstanding invoices and reconciling accounts is crucial. AR software automates this often complex process, matching payments to invoices even with partial payments or deductions. 

This automation minimizes manual effort, reduces errors, and speeds up the reconciliation process, directly supporting the "Automate your accounts receivable process" best practice.

Advanced systems can also flag discrepancies for quicker resolution, preventing delays.

4. Collections and dispute management

When payments are delayed, effective collections strategies are essential. AR software automates personalized payment reminders, escalates overdue accounts based on predefined rules, and provides a centralized platform for managing customer communications and disputes. 

This aligns with "Personalize your communication" and "Implement a robust dispute resolution process."

For credit and risk management, the software can segment customers based on payment history and risk profiles, allowing for tailored collections approaches and proactive risk mitigation.

5. Reporting and analysis

The final step involves continuously monitoring AR performance and leveraging data for strategic decision-making.

AR software provides comprehensive dashboards and reports on key metrics like DSO, ADD, and CEI. These insights are critical for cash flow forecasting, identifying high-risk accounts, and optimizing collections strategies. 

This directly reflects the "Leverage data and analytics" best practice, allowing finance leaders to make informed decisions that enhance working capital efficiency and support sustained growth.

The analytical capabilities also inform credit and risk management by providing a clear view of customer payment behaviors and potential bad debt.

Most common challenges related to managing accounts receivable

Managing accounts receivable is crucial for any business, yet it often comes with a unique set of challenges.

These hurdles can significantly impact cash flow, operational efficiency, and overall financial health. Understanding these common obstacles is the first step toward implementing effective strategies for improvement.

Manual processes and human error

Relying on manual accounts receivable processes isn't just inefficient; it's a direct impediment to strategic financial management. The daily grind of manual invoicing, reminder generation, and payment reconciliation consumes valuable team hours that could be better spent on high-value analysis and forecasting. 

This translates to increased operational costs and a higher propensity for human error, directly impacting the accuracy of financial statements and cash flow projections. These inaccuracies manifest in inflated DSO and ADD metrics, signaling an impaired ability to convert sales into cash.

Ultimately, this restricts available working capital, forcing finance teams to manage tighter liquidity and potentially miss out on critical investment or growth opportunities.

Lack of technology and integration

Outdated or fragmented technology stacks pose a significant hurdle for sophisticated AR management. Legacy AR systems often operate in isolation, failing to integrate seamlessly with modern ERP, CRM, or sales platforms.

This creates cumbersome data silos where critical information about customer orders, payment terms, and communication history resides in disparate systems. 

For finance professionals, this means a constant struggle to gain a unified view of AR health, leading to inaccurate forecasting, misinformed credit decisions, and an inability to automate end-to-end workflows.

The lack of integrated data directly impacts the reliability of key metrics, obscuring the true state of cash flow and hindering the ability to preemptively address payment issues.

Ineffective communication and dispute resolution

Poor communication and an unstructured dispute resolution process are silent killers of AR efficiency. Generic payment reminders, a lack of personalized follow-up, and an absence of clear channels for addressing customer queries inevitably lead to prolonged payment cycles.

For finance teams, this means a disproportionate amount of time spent chasing payments that are held up by easily resolvable disputes.

More critically, an inefficient dispute resolution mechanism can damage customer relationships, leading to future payment friction.

These communication breakdowns are reflected in stubbornly high ADD, indicating that a significant portion of overdue invoices are tied to unaddressed issues rather than an unwillingness to pay.

Compliance risks and financial fraud

Beyond operational inefficiencies, inadequate accounts receivable management carries significant compliance risks and opens doors to financial fraud.

Without robust internal controls and comprehensive tracking, companies face increased vulnerability to fictitious receivables, lapping schemes, or concealment of bad debts. Finance leaders bear the responsibility of ensuring the integrity of financial reporting. 

A lack of transparency in AR processes can lead to misstated financial positions, attracting regulatory scrutiny and potentially resulting in severe penalties.

The inability to reconcile accounts accurately or to track payment patterns meticulously increases the risk of financial irregularities going undetected, jeopardizing the company's reputation and financial stability. 

These risks underscore the necessity for not just efficient, but also highly secure and auditable AR processes.

How to measure accounts receivable management performance

Measuring the effectiveness of your accounts receivable management is crucial for maintaining healthy cash flow and ensuring the long-term financial stability of your business. 

By tracking key performance indicators (KPIs), finance leaders can gain valuable insights into operational efficiency, identify potential risks, and make data-driven decisions to optimize working capital.

Why accounts receivable metrics are significant

Accounts receivable metrics go beyond simple accounting figures; they serve as vital indicators of a company's financial health and operational efficiency. For finance leaders, these metrics provide a window into the effectiveness of sales, invoicing, and collections processes. 

An upward trend in metrics like DSO or ADD can signal underlying issues such as inefficient billing, lax credit policies, or poor communication with customers. Conversely, improvements in these metrics reflect a well-oiled AR machine that is converting sales into cash efficiently.

Ultimately, the significance lies in their ability to directly impact liquidity, profitability, and the overall capacity for growth.

How accounts receivable metrics relate to working capital

Working capital is the lifeblood of any business, representing the difference between current assets and current liabilities.

Accounts receivable directly impacts working capital as it represents money owed to the company that has yet to be converted into usable cash. Efficient AR management means accelerating this conversion process, thereby increasing available working capital. 

When collections are slow, working capital gets tied up in outstanding invoices, leading to potential liquidity shortages. This can necessitate borrowing or delay investments, hindering strategic initiatives.

By reducing DSO and ADD, finance teams can unlock working capital, allowing the business to fund operations, invest in growth opportunities, and manage short-term obligations more effectively.

Early signals from accounts receivable regarding customer risk or cash flow health

Accounts receivable metrics provide crucial early warning signals about both customer financial health and overall cash flow. A sudden increase in a customer's average days to pay, or an uptick in the number of overdue invoices from a particular client, can indicate that the customer is experiencing financial difficulties.

This allows finance teams to proactively engage with these customers, offer payment plans, or adjust credit terms to mitigate potential bad debt. 

On a broader level, deteriorating AR metrics signal impending cash flow challenges, giving finance leaders time to adjust spending, re-evaluate budgets, or explore alternative financing options before a crisis hits.

By closely monitoring these early signals, companies can minimize risks, protect revenue, and maintain a robust financial position.

Taking control of your accounts receivable management with Chaser

The right accounts receivable management software is an invaluable tool in this endeavor, providing tools to streamline operations, gain critical insights, and foster stronger customer relationships. 

Investing in robust AR practices empowers finance leaders to transform accounts receivable from a potential liability into a powerful asset that drives liquidity, supports growth, and enhances overall financial stability.

Leveling up your AR management

Good accounts receivable management isn't just about collecting money; it's vital for healthy finances, better cash flow, and steady business growth. By using smart methods, good practices, and the right technology, you can turn accounts receivable from a problem into a strong advantage.

Ready to take control of your accounts receivable and boost your business's financial health? Choose Chaser for smart accounts receivable automation.

Start your 10-day free trial today to see how Chaser can simplify your work, improve customer relationships, and significantly increase your cash flow.

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