Table of Contents Click Here to Show
2 What are The Challenges that Company X faced in Achieving accurate AR?
4 How ARDEM Resolved the Company’s AR Issues
Accounts receivable (AR) is one of the major assets of a company and its management can make or break a business. It is a vital function in a company because it affects a company’s cash flow. Therefore, efficient AR management is crucial for all businesses.
Previous reports show that about 48% of businesses that experience payment delays witness bad debts. 64% of small businesses receive payments late. As a result, 23% refrain from investing in new technology or hiring additional staff. Even 17% get financially stuck building up inventory. Mismanaged cash flow is the number one risk for small businesses. 80% of businesses shut down because of flaws in the company’s cash flow management.
To maximize revenue, companies ensure sending invoices promptly and collect payments as soon as possible. Businesses provide credit facilities to customers for easy transaction processes and establish a strong credit relationship with them.
AR involves more than just reminding the clients to pay invoices on time. Companies need to check if there are loopholes in the system or any administrative errors due to which the client has skipped the payment.
Company X is a well-established company in the intercom systems industry serving globally. Over the years, the company has faced varied challenges in managing its AR Function. The main challenge they faced in achieving accurate AR was manual processing.
Manual processing is prone to incorrect listing on invoices. AR teams need to send lots of invoices on a daily basis. Therefore, human forces are more likely to input incorrect data, amounts, or invoice numbers, omit discounts, and overlook policies to be legally compliant. These errors were compounded as they served a large clientele base. Manual processing involved sending invoices to customers via email and waiting to receive payments. It was a time-consuming process that caused delays in receiving payments.
When Company X extended credit, they were required to make a careful and critical examination of the client’s repayment ability. Failure to properly vet or careful examination resulted in delayed payments or bad debts. Just like accounts payable vendor management in the AP function, the clients’ account management is crucial in the accounts receivable function.
Inadequate payment options also resulted in delayed payments. Difficulty in settling the invoice led to procrastination by the company’s clients. They may have prioritized other invoices with less friction.
Errors in invoices and bills due to manual invoice processing led to delays in receiving payments as it takes time to respond to client’s requests for clarification and apply revisions. Delayed payments affected the company’s cash flow. In turn, they could not invest in their business growth.
Inconsistency was the result of manual processes. The staff might manually prepare and send each invoice to clients manually. Many times, staff forgot to send them, and a few invoices were misplaced.
The receivables function of Company X and its clients had minimal visibility into the status of open invoices due to traditional means of communication (email) during the invoicing to cash conversion process. It led to misunderstandings and caused payment disputes.
The most crucial aspect of AR management is ensuring the inflow of money and timely payment from customers. The following are the best practices to sustain receivables and overcome present challenges in the company’s AR:
Company X realized that they need an experienced BPO (Business Process Outsourcing) service provider to maintain all such favorable but time-consuming tasks. Outsourced accounting services cover as explained above and many more strategic activities, like automated invoicing, ensuring effective receivable processing.
To implement the solutions for efficient AR function, Company X partnered with ARDEM, a leading provider of accounts receivable outsourcing services, which helped it to address various challenges.
ARDEM worked with Company X and offered an end-to-end accounts receivable solution – customized as per their business needs that ultimately boost receivables efficiency in the company.
Expert AR teams at ARDEM studied the current process and broke it down into individual steps for more valuable insights. Teams optimized each step for efficiency and then implemented it for an efficient workstream.
As the company wanted to automate its entire AR function, from generating invoices to payment receipts, ARDEM automated the function with customized accounts receivable solutions.
This end-to-end AR solution that ARDEM implemented to address the AR related issues in Company X includes the following:
The automated process for invoice generation resulted in reduced turnaround time for the invoicing process. With an electronic invoice delivery system, invoices were sent directly to the client’s inbox to ensure prompt delivery. It positively impacted the efficiency and speed of converting invoices into cash.
With the integrated e-payment processing system streamlined the payment process. Customers were able to make payments directly and quickly. It reduced the time for payments to be received.
Company X received real-time reporting that helped it to monitor the status of invoices and payments. With better visibility into the entire order-to-cash process, the company could make informed decisions based on real-time data and optimize its cash flow effectively.
Automated processes reduced errors and delays that occurred in manual processing, like data entry, invoice processing, and payment collections.
The time the company’s AR was used to receive cash from clients and convert it into working capital was reduced with a shortened cash cycle.
With proper credit management and communication with clients, it reduced the average number of days for payment collection after a sale on credit had been made.
The list of AR tasks for Company X included:
The transition period was only a month and the results were tremendous to boost the receivables efficiency as shown below:
|Description||Jan 2023||March 2023|
|Monthly Average Task Processed||225||666|
|Average Daily Analyst||1||1|
|Turnaround (24 Hours)||99%||99%|
The present fast-paced business world requires effective business processes to boost efficiency. As a result, many businesses turn to efficient outsourcing companies, like ARDEM, offering automation solutions.
ARDEM provides Business Process Outsourcing and Business Process Automation Services to established companies to help them improve operational Efficiency and Reduce Costs. For more information please reach out to us at email@example.com or call us at 908-359-2600.