How to Solve B2B Teams’ Top Four Accounts Receivable Challenges
24 February 2023Accounts receivable (A/R) are a crucial part of any organization’s accounting systems, and good A/R management can mean the difference between a strong cash flow and large amounts of bad debt. For smaller organizations, resource constraints make it even more challenging.
According to eMarketer, in order to win over SMBs, providers must address two ongoing tensions in the B2B payments process:
- Balancing speed, convenience, and costs
- And navigating complex and accounts receivable (A/R) processes
To prevent cash flow problems within your business, you must address these the most notably pervasive accounts receivable challenges, keeping the customer experience top of mind.
Keep reading to learn more:
A Look at the Accounts Receivable Challenges That Most Often Hold Teams Back
Most companies find themselves facing a handful of accounts receivable challenges that affect not only A/R collections but the organization’s financial health.
By addressing them strategically, businesses gain a surefire way to sidestep the pitfalls that frustrate A/R teams everywhere.
Here are some red flags to look out for:
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 A/R, 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 A/R 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 A/R Management Practices
Without policies and procedures to guide your A/R 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 Accounts Receivable Process
Companies that ignore trends like accounts receivable automation and instead rely on manual A/R management increase the risk of human errors affecting their efficiency.
Digitization and A/R 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 A/R 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 the Top Accounts Receivable Challenges
No organization with an accounts receivable department is beyond experiencing these major issues. 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 A/R 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 A/R 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.
- 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. You can easily automate overdue invoices, reminders, calculation of late fees, and scheduled reporting, freeing up your team for more pressing tasks.
Getting Started With Better A/R Operations
How you handle accounts receivable has a clear impact on the success of your operations.
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.
Addressing these common accounts receivable challenges is vital to your company’s continued health and solvency, and k-ecommerce can help.
Explore our 3 actionable tips and tools for optimizing Accounts Receivable in B2B.