4 Common Accounts Receivable Challenges

24 February 2023

Accounts receivable (AR) are a crucial part of any organization’s accounting systems, and good AR management can mean the difference between a strong cash flow and large amounts of bad debt 

To prevent cash flow problems within your business, you must address these accounts receivable challenges 

Keep reading to learn more: 

  • Accounts Receivable Challenges 
  • How To Solve Accounts Receivable Challenges 
  • Final Thoughts: 4 Big Accounts Receivable Challenges and Their Solutions

Accounts Receivable Challenges 

  • Inconsistent information from multiple independent systems 
  • Poor internal and external communication 
  • Poor accounts receivable management practices 
  • Lack of automation in the account receivable process 

Most companies find themselves facing accounts receivable challenges. These four challenges affect not only AR collections but the company’s financial health. 

Inconsistent Information From Multiple Independent Systems 

Some businesses don’t have a unified solution for all their operational activities, instead using  different systems for each part of their operations. They use one system for sales, another for ERP, and another for accounting.  

These legacy systems exist in silos and aren’t interconnected. Yet the data from each system is crucial for getting an accurate read on the business’s financial status. While things may operate at a reasonable efficiency level for day-to-day business operations, the problems usually start when it’s time for reporting. 

Retrieving and organizing accounts receivable information from each system can be tedious, time-consuming, and prone to errors. This process becomes more complicated when mistakes happen. Organizations waste time resolving discrepancies due to data entry errors or incompatible data types. 

Poor Internal and External Communication 

The quality and effectiveness of your internal and external communications can make or break your business. In AR, poor external communications with customers can cause many issues for your accounts receivable team 

Problems like late payments and bad debt can all be traced to poor communication. For instance, a customer forgets about a pending invoice payment, and you don’t follow up to remind them about paying on time 

Internal communications also negatively impact your accounts receivable. Poor communication between different departments will affect the flow of information. For example, delays between the finance team that processes AR collections and the team that keeps records of unpaid invoices.  

Whatever the source of the communication issue, it can harm the organization’s cash flow. 

Poor Accounts Receivable Management Practices 

Without policies and procedures to guide your AR team, problems continue to grow and affect your cash flow 

For example, lacking documentation for basic processes. Team members might end up following their own rules for routine tasks like documenting invoices, resolving disputes, or collecting payments. 

Just imagine the effort it would take to harmonize invoices from different team members that don’t contain the same customer information. 

What’s even worse is that this can affect customer relationships 

The absence of an accounts receivable policy would mean some customers could get treated favorably with lenient payment terms. In contrast, others have to jump through hoops to resolve outstanding invoices before their due date 

Even when a policy exists, if team members don’t understand and follow it, it’s the same as not having one.  

Suppose someone on the team ignores the procedure for documenting credits on the income statement and leaves out crucial information. In that case, it will cause problems for anyone looking to get reliable information from those records. 

Lack of Automation in the Account Receivable Process 

Companies that ignore modern business trends like accounts receivable automation and instead rely on manual AR management increase the risk of human errors affecting their efficiency.  

Digitization and AR automation allow for the standardization of data and processes across company departments. This standardization reduces the occurrence of conflicting data and increases collaboration between teams.  

On the other hand, manual AR management increases the time it takes to reconcile accounts, generate reports, and produce actionable data for decision-makers. The delays these manual processes cause will impact the business and cause cash flow issues if allowed to fester.   

How To Solve Accounts Receivable Challenges  

No organization with an accounts receivable department is beyond experiencing the challenges mentioned above. If left unattended, they can hinder your operations and cost you dearly.  

The following proactive steps can help resolve these challenges and ensure that your AR team operates at maximum efficiency. 

  • Harmonize your systems and make it easier for them to talk to each other. Upgrade from siloed systems that don’t communicate with each other to integrated systems that share data and simplify the collections process

    This unified system should make it easy to create a central dashboard for all accounts receivable information. 

  • Create/update your policy for the accounts receivable process to properly document all its steps. Your days sales outstanding (DSO), collection effectiveness index (CEI), and accounts receivable turnover ratio are some key metrics your policy should cover. 

    Your documentation should also include payment terms, billing processes, a credit policy, and a collections strategy. The AR team must be involved in the creation process and use data to verify the effectiveness of the policy and amend it as needed. 

  • Ensure that your policy also outlines communications procedures for customer service and internal communications. These should include payment reminders, details about contact persons for each customer, and steps for handling late payments.

    Communication is the key to reducing payment delays and assists customer service in providing accurate answers to customers.

  • Enable electronic payment methods like k-ecommerce Integrated Payment (KIP) via a portal to enable your customers to pay their invoices and manage their accounts online. 

    Ideally, your ecommerce system should easily integrate with your existing ERP. 

  • Use technology to automate everything to ease the burden on your team and increase the efficiency of your operations. 

    A recent study shows that 88% of small and medium businesses use automation tools to overcome repetitive tasks and compete with larger enterprises. Automated solutions will streamline your workflow while also improving the customer experience

    You can easily automate overdue invoices, reminders, calculation of late fees, and scheduled reporting, freeing up your team for more pressing tasks. 

Final Thoughts: 4 Big Accounts Receivable Challenges and Their Solutions 

How you handle accounts receivable has a clear impact on the success of your operations.  

Addressing these common accounts receivable challenges is vital to your company’s continued health and solvency. 

Strong actions like automating your AR processes help address these challenges and secure your company.  

One surefire way to tackle all these challenges in one go is with the right ecommerce solution that integrates seamlessly with your existing infrastructure and automates your payment processes 

Get in touch today to learn more about k-ecommerce and how it can streamline your accounts receivable operations.