07.08.2022 | Posted by Erik
What to Look for in an AR System (+ Benefits of Using One)
As an outsource receivables management company, we couldn’t function without our AR system. It keeps us organized, generates reports, and automates some of our processes. Most importantly, our AR system enables us to maintain our high standard of customer service while ensuring invoices are paid.
You don’t have to be an accounts receivable outsourcing firm to enjoy these same benefits, though. With a quality AR system, you can:
- Manage customer relationships
- Automate follow-ups
- Organize customer and invoice information
- Create and view reports on outstanding invoices
- Predict cash flow
- And more
So how can you make sure you choose the right AR software? We’ve put together our list of top considerations to help guide you.
8 Things to Look for in an AR System
Here at Axim, we actually built our own AR system, so we’re intimately familiar with the must-have features for a robust platform. These are our top eight.
1. An Ability to Schedule Follow-Ups and Review Dates
An effective AR system needs to have the ability to schedule follow-ups and review dates for accounts. As an accounts receivable outsourcing firm, we’ve found that it’s extremely important to set a consistent culture of timeliness with your customers.
Establishing set dates to follow up with your customers leads your customers to start expecting to hear from you. For example, if you always follow up at seven days past due, your customers will anticipate hearing from you every time they’re a week late paying an invoice—and they’ll be more motivated to pay before they reach that past due date. Your software should facilitate this process.
2. Automated Follow-Ups
Ideally, an AR system should have the option to automate the first 1-3 touches on past-due invoices, so your team doesn’t have to handle it manually. For example, you might schedule your system to send an automated email reminder once an invoice is three days, five days, and seven days past due.
The email can say something like, “Just a reminder, your invoice is now X days past due. Let us know if you have everything you need to remit payment.” By automating these earlier follow-ups, your team can focus their energy on the more difficult subsequent touches that can’t easily be done over email.
3. Invoice Status Options
It’s extremely important to be able to code your invoices or assign a status to them. You should be able to open an invoice in your system and easily see where it stands. Is it in dispute? Is it promised? Is it coming in the mail?
This ability is critical because it not only allows you to see the exact status of an invoice quickly, but it gives you the ability to pull reports to gain an accurate understanding of what’s going on with your open invoices across the board. Whether it’s a numeric code or a dropdown with different categories, having set options to select from helps facilitate easier reporting.
4. Note-Keeping Options
Being able to keep notes for every invoice—not just every account—is also key. Too often, AR software solutions allow you to add account-level notes but not invoice-level notes. However, since it’s common for one company to have more than one invoice open at a time, it’s important to be able to record specific notes on each of them.
For example, you should be able to add a note like, “We sent an invoice copy on May 1st and May 14th to the email address bigboss@thecompany.com.” Without notes, it can be more challenging to keep up with these details and collect. Notes help break down barriers to payment and keep everyone on the same page.
5. Cash Flow Prediction Reports
It makes a world of difference when you have an idea of when payments are likely to come in from whom. Our in-house system tracks every open invoice and what day it gets paid, then calculates averages to estimate future invoice payment dates based on a customer’s past payment history. For example, if a customer is usually 15 days past due, the chances are high that they’ll pay around the same time in the future.
With this capability built into the system, we can map out expected future payments. This allows us to tell our customers things like, “You can expect $XYZ amount to be paid by June 3.” Of course, not every prediction will end up being accurate, but it makes more informed forecasting possible.
6. A Customer Rating System for Difficult Accounts
To protect your business interests, it’s extremely helpful if you’re AR enables you to add a rating to customer accounts based on how well they pay—ranking them from difficult to collect to excellent payers. The most effective rating systems will take into account customers’ payment habits and etiquette.
For example, if a customer yells at your reps or gets belligerent, they might be rated as a high-risk customer, even if their payment history is more average. We recommend using a dropdown menu for easier reporting. The following ratings are a good starting point:
- High-risk
- Poor
- Average
- Good
- Excellent
- COVID risk
- Bad debt
- New
A rating system helps avoid gaps in knowledge if the dedicated collector is out and you need to catch up quickly on an account, providing information that helps supplement customer notes.
7. A Way to Store AP Contacts
It just makes sense to be able to store all your customer contact details in the system as well. Oftentimes, you’ll have more than one contact for a single account (i.e., the controller, CFO, CEO, AP contact, etc.), so it’s important for the software to allow you to attach multiple contacts to each account.
In many ways, your AR system should be like a CRM built specifically for your AR efforts.
8. Robust Reporting Capabilities
In addition to the forecasting reports that we mentioned earlier, an AR system should allow you to pull reports based on different factors. For example, you might want to generate a report of all your “high-risk” clients to see how much money is at risk of being past due or run a report listing out each invoice category on the books to get a good look at what to expect.
The ability to pull reports based on most standard fields in a customer record is ideal, including customer rating, invoice code, follow-up date, and more. This type of granular reporting will enable you to maintain an intimate understanding of your accounts at all times.
Getting Started With AR Systems and Outsource Receivables Management
There are many benefits to a quality AR system. As an outsource receivables management firm, we literally couldn’t function without ours. If you’re on the hunt for a high-quality system, be sure to look for the eight features we discussed above.
Alternatively, consider accounts receivable outsourcing. Here at Axim, we already have the AR software to maximize collections while safeguarding your brand reputation.