It's crucial for small businesses to maintain good cash flow by managing finances and staying updated on Accounts Receivable (AR). Effectively handling AR means keeping track of customer invoices and making sure payments are collected on time.
Now, let's look at common challenges finance teams face with AR and ways to enhance payment collection while minimizing the risk of unpaid invoices.
Typical Hurdles in Handling Accounts Receivable
Accounts Receivable is the money that a business is waiting to receive from customers for products or services already provided. The main goal of managing AR is to make sure that you collect unpaid invoices on time. This helps maintain a healthy cash flow and can enhance your relationships with customers. Regrettably, by mid-2023, 77% of 300 CFOs acknowledged that their AR teams were not up to date.
There are lots of challenges involved in collecting payments:
Bad Debts
Bad debt occurs when a business cannot collect money from a customer, often because the customer fails to repay a loan, declares bankruptcy, or refuses to pay.
Unpaid Bills
One major issue in AR is the slow payment or even non-payment of bills by customers. Businesses need a consistent cash flow to manage their costs, and delays in payments can put a financial burden on the company.
Businesses might find it challenging to spot overdue payments, resulting in delays in following up for payment collection.
Late Invoicing
When businesses use a manual method to create and send invoices, it can cause delays in reaching customers. This delay in invoicing also leads to delayed payments and possibly negative cash flow.
Billing Mistakes
Errors such as wrong amounts, duplicate invoices, or missed invoices are more likely with manual invoicing.
Tracking of Payments
Another problem in AR can occur when payments are not organized and tracked effectively. Without a good system, it becomes challenging to know which invoices have been paid and which ones are still pending.
Communication with Customers
The AR team often talks to customers who have questions or concerns, but this isn't given as much importance as other tasks like creating invoices and reconciling accounts. Usually, communication with customers happens through email or phone without proper tracking. This makes it hard to keep track of important information since it's scattered across various email conversations between customers and the billing team.
Is there a software available to enhance AR management?
One study in 2023 shows that on average, 33% of companies spent $54,308 on finance and accounting software; this increased by 13.7% from 2022 with $47,758. Significantly, budgets for Accounts Payable (AP) and Accounts Receivable (AR) systems also grew by 29%, proving that CFOs are prioritizing CFO Tech Budgets.
In the past, the AR teams used spreadsheets for managing data, which involved manual input and could result in errors. To fix this issue, companies should consider investing in software that can automatically handle and monitor accounts receivable. This software should enable businesses to conveniently see unpaid invoices, verify payment statuses, and create reports effortlessly.
When choosing accounts receivable automation software, businesses should seek options that minimize manual work in handling overdue invoices, late payments, and debts. The software should automate tasks like sending payment reminders, creating invoices, and supporting online and digital payments.
Right on time, Datarails Connect is stepping in to address this gap. They introduce a revolutionary method for gathering and combining financial and operational data. This approach aims to swiftly generate reports, enabling teams to retrieve data from their spreadsheets, including ERP, CRM, HRIS, and more. It offers an easy way to create reports without the complexity of BI tools.
Datarails Connect is a modular Excel reporting solution pulling live ERP information directly into Microsoft Excel without the headaches found with other reporting solutions. Designed to be able to sync with all systems it incorporates version control and provides a single source of data.
There are multiple use cases according to the company. One that is already proving popular among teams is aging analysis –used to evaluate and identify any irregularities within a company's ARs.
With Datarails Connect, a quick wizard and formula data is pulled from Quickbooks with outstanding amounts summarized clearly in seconds. You simply add conditions as you see fit, copy the formula to Excel, and refresh! Traditionally, these Excel files take an hour to compile. But in the demo, it was all generated in seconds.
In 2025, there's still much ahead, but businesses embracing automated solutions to streamline tasks and gather financial data throughout their organization are likely to experience increased efficiency, better insights, and improved decision-making.