Table of Contents
- How Do Businesses Deal with Accounts Receivable Challenges?
- How to Address Accounts Receivable Challenges?
- Paystand: Your Partner in Accounts Receivable Automation
Key Takeaways
- Accounts receivable challenges, such as slow payments and manual reconciliation, impact cash flow and business growth.
- AI and automation reduce DSO, eliminate manual errors, and improve AR efficiency.
- Automated invoicing, digital payments, and predictive analytics help businesses manage receivables more effectively.
- Paystand’s AR automation platform eliminates transaction fees, accelerates payments, and enhances financial transparency.
- Implementing AI-powered AR solutions transforms cash flow management and supports long-term business success.
In today's fast-paced digital marketplace, accounts receivable (AR) teams face numerous challenges that impact a company's cash flow and growth. Even with an optimal rhythm, some remain significant.
Common accounts receivable challenges include high days sales outstanding (DSO), ledger disorganization, poor communication, and inadequate policies. According to recent data, 54% of businesses experience late payments, with 33% of invoices being overdue by more than a month. These issues can restrict growth, reduce working capital, and disrupt operations.
A weak accounts receivable management process can cause several other unintended consequences, including:
- Missed follow-ups on overdue invoices
- Writing off outstanding receivables as bad debt
- Errors on bills and invoices
- Incorrect payment allocation
The good news is that if you can identify accounts receivable management problems, you can overcome them. Accounts receivable automation and AI-driven solutions are transforming AR management.
This guide will address common accounts receivable challenges and offer actionable solutions. We'll also share a few activities you can do within AR to free up cash and strengthen your working capital.
How Do Businesses Deal with Accounts Receivable Challenges?
1. Slow payment cycles
Timely payments and AR processing are crucial to surviving in the digital marketplace. AR teams must close the gap between collection and the invoicing schedule to optimize cash flow. But the cycle is also slow due to the required manual work.
Managing paper or PDF invoices and checks requires much time and manual labor, which decreases the team's productivity. Even with a lockbox system, collection can take more than a week, assuming the customer pays on time. These long wait times strain a company's cash flow and budget, making it harder to grow and keep up with invoices.
2. Tracking and reconciling payments
Manual reconciliation is time-consuming and error-prone. Businesses using spreadsheets or legacy systems struggle with missing payments and mismatched invoices.
AI-driven payment reconciliation automatically matches payments with invoices, reducing errors and streamlining accounting workflows
3. Above average DSO
DSO is the average time for credit sales to turn into cash. A high DSO indicates that a business takes too long to collect payments, impacting liquidity. If this KPI runs higher than the industry's average, ensure the credit plans you offer are the most you can afford. Getting a new protocol and financial planning in place is also wise.
These figures can help us put this challenge in perspective:
- 54% of businesses expect their payment to be paid later than the due dates
- 20% of late invoices are late for over two weeks, and 33% are late for over a month
- Only 6% of manual invoices are paid within 30 days
While your customer relationship is essential, so is getting paid. You can use different strategies to incentivize early payment, such as automated reminders, free payment rails options, and discounts.
4. Ledger Disorganization
Without a centralized AR system, businesses struggle to track outstanding invoices. Cloud-based AR automation platforms provide real-time visibility into receivables, allowing finance teams to manage cash flow more effectively.
5. Poor Customer Communication
Effective communication channels and contact points are essential for timely payments, especially at the beginning of any business relationship. Delayed payments often result from unclear invoices or miscommunication.
Automated reminders, AI chatbots, and self-service payment portals help improve customer engagement, leading to faster payments.
6. Lack of Proper Policies
The worst thing to do is undercut the business through impractical accounts receivable management policies. It usually starts with someone suggesting credit incentives or adding new payment options without considering its effect on the AR process. But the hard truth is that not everyone may be the right fit for your product or service.
Most companies have an accounts receivable policy for when and how much to bill and collect. However, not all businesses execute that policy effectively. The average US business has up to 24% of its monthly revenue in overdue invoices.
How to Address Accounts Receivable Challenges?
1. Offering Digital Payment Methods
The best way to reduce delinquency and increase collections is to make it easier and faster to pay invoices. Offering a range of digital payment options ensures greater flexibility for customers. Furthermore, teams can speed up the AR process when securely storing customer payment data on their platform.
A zero-fee payment rail, such as Paystrand’s B2B Network, allows businesses to transfer money without incurring transaction costs. This eliminates hidden fees and makes payments more cost-effective.
By enabling fee-less transactions and applying convenience fees to credit card payments, businesses can reduce costs while offering customers a seamless, digital-first payment experience.
2. Reducing DSO
The first step to reduce your DSO is to streamline your strategy. Set up a proper debt collection strategy to ensure every invoice gets sent promptly, with clear payment terms. We recommend delivering invoices digitally rather than by mail. Electronic invoicing speeds up billing and collections. You can save more time by having customers set up autopay or recurring payments.
Research shows you're more likely to get paid on time if you offer more ways to pay a bill. You'll get paid timely, increasing the likelihood of the client becoming a repeat customer.
You can also offer incentives to encourage customers to pay early and impose penalties for paying late. For example, offer a discount for paying within ten days when your usual payment terms run up to 30 days.
3. Implementing AI and Automation
AI and automation are transforming accounts receivable management, helping businesses reduce manual tasks, improve accuracy, and accelerate cash flow. AI-driven tools can predict late payments, automate invoice matching, and flag discrepancies, allowing AR teams to take proactive action.
Automation eliminates delays by sending real-time payment reminders, reconciling payments instantly, and reducing human error. Paystand’s AR automation platform, powered by blockchain, removes transaction fees, enhances transparency, and speeds up B2B payments.
For a seamless transition, businesses should inform customers about new automated processes. With AI-powered automated AR solutions, companies can streamline collections, reduce DSO, and improve overall financial efficiency faster than ever.
4. Improving ledger management
If you still need an ERP, invest in one. If you already have one, cut out paper checks and put time into accounts receivable automation. Digitizing and simplifying your accounts receivable process is vital to improving your ledger.
At the same time, it's easy to fragment your accounts receivable process. Using too many ERPs, invoicing, reporting, and payment tools can cause more problems. It's hard for AR teams to match data from one system to another, and reporting becomes a nightmare. Opting for end-to-end tools that help the entire accounts receivable process is better.
5. Strengthening AR communications
Not updating records can lead to mailing invoices to the wrong address, contributing to late payments. Businesses need to update their customer data to avoid these problems.
Then, you must send regular billing reminders tied to milestones like shipping dates, completion status, or the next due date.
Besides including an accounts receivable flowchart to help teams visualize their process, you can also use AR automation software to set up an invoicing schedule to achieve this. This way, you will always know when a customer is contacted.
Another practical option to eliminate the hassle of communicating with customers is to hire an outsourcing service. This way, the time spent contacting them can be used for other, more strategic and growth-driving tasks.
6. Reviewing AR policies
A well-structured AR policy can help you discern between those who would make great customers and those who would not. Revisiting and simplifying these policies is often worth it.
As customers and industries change, risk profiles do too. You can alter customers' credit terms if they're in a high-growth sector or struggling against economic conditions.
Ensure the terms of sale on credit are straightforward and accepted by your customer. These include the credit period and any discount you decide to offer, along with the discount period. Terms of sale may look like this: 2/10, net 30. You give customers a 2% discount if they pay in ten days. If they don't take the deal, their bill is due in 30 days, as usual.
Develop a robust credit analysis process according to your customer's industry. You can include different methods, such as credit reports or scoring. Providing the data based on each payment option to the management team can help promote buy-in for any changes you want to make to the AR process.
Paystand: Your Partner in Accounts Receivable Automation
Now that you know the main accounts receivable challenges and the possible solutions to overcome them, you need to find an ally that will allow you to continue to grow without eating into your ROI.
Paystand’s AR automation platform transforms AR processes, eliminating transaction fees, accelerating payments, and providing real-time transparency.
Why Businesses Choose Paystand:
- Free Payment Rail Option – Unlike ACH and credit card payments, Paystand offers fee-less B2B transactions, reducing costs.
- Real-Time Payment Tracking – Blockchain-powered transparency provides instant payment status updates.
- Automated Reconciliation – AI-driven matching tools eliminate manual errors and speed up collections.
- Seamless ERP Integration – Sync with NetSuite, Sage Intacct, Microsoft Dynamics, Acumatica and other accounting systems.
Modernize your accounts receivable processes, speed up your cash cycle, and reduce your AR turnover days with Paystand’s automated solution today. Take the first step towards an automated future and learn more about Paystand's AR solution.
