11.23.2020 | Posted by Erik
3 Signs Your Accounts Receivable Management Isn’t Working
Most companies dread any conversation about accounts receivable management. It makes sense. No one starts their business expecting to spend large amounts of time devoted to getting invoices paid. Chasing down payments isn’t fun, and many times it can be downright exhausting.
Getting paid is an essential part of running a business, though. While many companies handle their accounts receivable management in-house, this isn’t always the most cost-effective option.
What No One Tells You About Managing Accounts Receivable In-House
When companies manage their collections in-house, they usually do so without any software. This means they’re stuck tracking everything manually in spreadsheets or QuickBooks. This might sound acceptable in theory, but it can be really challenging to effectively manage collection conversations and processes inside a spreadsheet.
Beyond that, there often isn’t a coordinated system for A/R. This means that management and team members pass the collection duties back and forth, resulting in inconsistent collector decisions and processes. Often, prioritization of activities are decided by whoever is making the calls versus an unbiased algorithm that objectively determines where to focus collections efforts.
Sometimes, there are processes and software in place, but things still aren’t working. Too often, businesses think poor A/R is normal. But accounts receivable management shouldn’t feel like drowning. If it does, something isn’t right.
Here are the top three signs that your A/R isn’t working.
Sign #1: The Number of Past Due Invoices Keeps Increasing
A surefire sign that your accounts receivable management isn’t working is that your past dues aren’t reducing. If your past due amounts are growing larger and the number of invoices past their due date is increasing, something clearly isn’t working.
Sign #2: You’re Having Trouble Staying Above Water
No one wants to admit they’re having cash flow issues. If too many clients go too long without paying and you’re having trouble staying above water, then your A/R isn’t working effectively. You shouldn’t be in a position where you’re unable to pay your bills because your clients aren’t paying theirs. This is a huge sign that your accounts receivable management isn’t cutting it.
Sign #3: You’re Getting Pressure from Your Lenders
No one likes getting a call from their lender. It’s especially rough to get that call because your clients aren’t paying their bills. If your lenders are complaining about your accounts receivable management, then it might be time to reexamine your processes.
My Accounts Receivable Management Isn’t Effective, Now What?
When accounts receivable management is ineffective, many things can slip through the cracks. Aside from angry lenders and past due bills, you could end up running yourself and your employees ragged trying to collect on unpaid invoices.
When things aren’t running effectively, you risk:
- Not picking up on patterns of why people aren’t paying
- Not noticing recurring discrepancies, like sending the invoices to the wrong person
- Adding companywide stress due to poor cash flow
- And more
We see these things all the time. Often, companies have been experiencing these signs for years before they partner with us. Simply put, companies have a hard time with accounts receivable management because there are just too many other things to focus on to keep a business running smoothly.
If your accounts receivable management isn’t effective, then maybe it’s time to consider outsourcing. We’ve helped companies get hundreds of thousands of dollars’ worth of invoices paid in a matter of months.