10.25.2024 | Posted by Erik
End-of-Year AR Slowdown? How to Prepare for the New Year
As the year winds down, many businesses experience a seasonal dip in cash flow. This slowdown is natural, as people take time off for the holidays, invoices get delayed, and mail often takes longer because of increased shipping demands.
While this slowed pace may be unavoidable, it’s also a great opportunity for accounts receivable services (AR) teams to fine-tune their processes and get everything set up to run smoothly in the new year. Here’s how your AR team can use the holiday season to their benefit.
Plan for Slower Cash Flow
If you’re in AR, keep in mind that cash flow may slow down during the holiday season. December is a busy time for many companies and individuals, from holiday parties and employee bonuses to higher spending and time off. All of this means that there’s often less cash to go around. Plus, with accounts payable (AP) teams also taking vacations, many invoices simply won’t be paid as quickly.
To be strategic during this season, it helps to plan for slower cash flow and allocate your resources accordingly. Consider adjusting your expectations for payments over the holiday period and focus on collections that are more likely to come through.
But perhaps most importantly, this slower season is a prime opportunity to prepare for the upcoming year. Don’t spend valuable time chasing invoices when key players are out of the office. Instead, focus on internal improvements and process refinement.
Fine-Tune Your AR Processes and Goals
The end of the year is an excellent time to assess how your accounts receivable services have performed throughout the year. Look at key metrics like average days to pay (ADP) and set realistic goals for improvement in the new year.
For example, consider whether your average collection time was longer than expected this year. If so, dive into your records until you figure out why invoices were paid slower. Were invoices missing required details or being sent to the wrong AP contact? Did your team fail to follow up on past-due invoices in a timely manner?
Once you understand the blockers, you can work to resolve them and develop a long-term strategy to reduce your ADP next year.
It’s also a great time to focus on resolving specific AR issues that have piled up during the year. Some common tasks that go neglected include:
- Tracking down missing invoice copies
- Correcting deductions
- Collecting or writing off short pays
Set deadlines for these tasks now so that you can start the new year fresh.
Clean Up Your Books
It’s not always easy to accept, but some customers simply aren’t going to pay. Instead of carrying those balances into the new year, why not use this slower time to write off bad debt? Writing off uncollectible debt not only cleans up your financials, but it also offers potential tax advantages through deductions.
Once you’ve identified the debts to write off, take things one step further by analyzing why you have bad debt in the first place. Ask yourself these questions:
- Are there patterns in the types of customers who haven’t paid?
- Did our credit investigation miss warning signs?
If investigating credit is a weak point for your team, you might consider credit management outsourcing to take the load off your in-house employees. Tightening your processes around credit can help reduce the chances of incurring more bad debt in the future.
Revisit Customer Credit and Payment Policies
Speaking of credit, the holiday season is a great time to review your credit management processes. Take a close look at customers with frequent late payments or bad debt and consider revisiting their credit terms. Did something go wrong with the initial credit investigation? Could stricter terms or better monitoring prevent issues down the line?
By revisiting customer credit and seeking external help through credit management outsourcing if needed, you’ll be better equipped to handle problem accounts in the future.
This is also an ideal time to audit your sales processes. Are your sales and AR teams aligned when it comes to payment terms? Schedule a meeting and make sure both teams are on the same page to help reduce any issues or disputes moving forward.
Prepare for Post-Holiday Action
The holiday season often brings a “wait-and-see” sentiment—especially when it’s a presidential election year. Customers may delay decisions until after the holidays, and the business world as a whole tends to slow down. But once the new year hits, you’ll want to be ready to hit the ground running.
Start preparing now by sending year-end statements to customers in November. This can act as a reminder for any outstanding balances and encourage faster payments before the holidays kick into full gear. Plus, when January rolls around, you’ll be in a better position to collect and reduce the risk of bad debt growing larger.
Get Help from Outsourced AR Services
If managing AR internally has felt like a struggle, the end of the year might be the perfect time to consider outsourcing. Partnering with a firm like Axim for accounts receivable services offers several advantages. Not only do you save on the cost of hiring and training in-house staff, but you also gain access to a team of experts whose sole focus is AR.
Outsourcing AR and credit management allows your business to run more efficiently. With Axim’s proactive follow-up system, you can ensure consistent touches with customers, helping reduce outstanding invoices and improve cash flow. Plus, having a dedicated AR partner means fewer headaches during the busy holiday season and throughout the year.
Use the Slow Season to Your Advantage
While the end of the year might be slow, AR teams have plenty of housekeeping to keep them busy in preparation for the new year. From cleaning up bad debt to refining AR systems and credit processes, this is the time to get your financial house in order.