Top Accounts Receivable Challenges for 2022

Jan 4, 2022 by Kelsey Banerjee

Accounts receivable management protects the cash flow of its organization - but in 2021, businesses worldwide faced extreme challenges due to supply chain shortages and asynchronous lockdowns. Customer relationships were strained as vendors attempted to delay payments, and AR teams worked to bring more cash in.

But in many cases, a lack of solid infrastructure turned into outstanding invoices and reliance on credit.

For accounts receivable teams, the last year made it clear that the department still had challenges to overcome in terms of the AR process, payments collection, and AR strategy.

5 Accounts Receivable Challenges (and How to Overcome Them)

Managing accounts receivable for the modern world means that the AR process must be modern. Most challenges on this list are related less to human error (although that does occur) and more to legacy systems. Outdated payment methods, manual processing, and similar processes contribute to sluggish AR departments. And create obstacles for both a company's AR team and the AP professionals on the other side.

The good news is that these top five accounts receivable challenges can all be remedied while reducing costs and time-consuming tasks.

1. Optimizing cash flow

The biggest receivable challenge is bringing in money consistently. But consider the time and effort it takes to send paper or PDF invoices and then receive traditional checks in the mail. Even with a lockbox system, it can take more than a week to get paid - and that's if the vendor pays on time. These lengthy wait times put stress on a company's cash flow and budget, making it harder to grow and stay on top of their own bills.

The fact is, timely payments and AR processing are crucial for survival in today's digital market. AR teams need to close the timing gap between getting paid and their AP team's billing schedule to successfully optimize cash flow.

But no matter how many people you hire, manual processing remains sluggish and error-prone. This is why adopting receivable management technologies is critical.

Gone are the days when digital ERPs and AR automation were "nice to have" or competitor advantages. These technologies are nearly mandatory for enterprise businesses and even small and medium-sized organizations.

2. Reducing DSO

Days outstanding is a significant challenge and one we touched on when talking about cash flow.

How can you decrease the days to get paid?

To put this challenge into perspective, 39% of invoices are paid late, and 4% are written off as bad debt annually. And when receivables are not paid on time, they lose 51% of their value.

The best way to reduce DSO and boost receivable collections is to make it easier and faster to pay invoices. Providing an array of digital payment options, such as credit cards, debit cards, and ACH transfers, can streamline the process. Teams accelerate the AR process further when securely saving customers' payment data on their platform.

But how much can you really shave off payment times?

We can't say talk about other AR platforms, but our users have seen a 60% drop in DSO.

3. Minimizing errors

With manual processing for receivable collections comes human error. It can't be avoided. Even if you have clear instructions and a solid billing policy (only 20% of businesses have a formal policy), professionals have hundreds of other things to do on top of complicated and dull data entry work.

Spreadsheets are extremely fallible, with 94% containing errors. But ERPs aren't perfect, either. After all, only the tool has changed. AR professionals still have to manually input data, even if some customizations can be saved.

The only true way to reduce errors is to invest in Accounts Receivable automation. There's just no way around it. With automation, the receivable process is streamlined so that AR teams only have to deal with exceptions. The straight-through processing rates can be as high as 67.2% percent.

In addition, AR automation solutions save your configurations and use them for quick AR processing. At the same time, it captures data throughout the payment process, so the accounts receivable management team can figure out how to improve their process.

4. Shifting to electronic payment methods

Encouraging digital payment methods isn't easy.

First, the AR team must decide which payment options make the most sense to accept. Then, they will need to make sure their customers will use their payment options. While more customers are open to electronic B2B payments, the customer experience should be seamless.

To boost receivable collections, AR departments shoulder offer popular payment options. Accepting a corporate credit card, debit card, or ACH transfer can go a long way to streamlining billing. But what if you want to reduce costs in addition to ensuring a timely payment?

AR teams have to decide how to deal with credit card processing fees. Should the company absorb the cost or pass it on to customers in the form of a convenience fee? Or can they absorb fees from less-expensive payment options, such as ACH transfers?

Making bank-to-bank transfers "zero-fee" while asking for a convenience fee for credit card transactions is a great way to reduce costs and encourage ACH payments.

The right payment solution should give organizations the flexibility to deal with these hidden costs. At the same time, it should make it easy for customers to pay in minutes.

5. Implementing automation successfully

AR managers and CFOs often recognize the need for digital transformation. But implementing AR automation successfully remains one of the most significant receivable challenges.

Automation is a key to unlocking value in AR processes, speeding up B2B payments, and turning a cash flow problem into a solution. However, AR teams must map out their payment strategy, invoicing workflow, and billing policies beforehand. It can also help to have buy-in from the team before investing in an automation integration for your ERP.

For a successful transition, there should be a plan to notify customers of the changes ahead of time. Payment collection is much smoother when everyone is informed and onboard.

Next Steps

It's time to get those outstanding receivables paid in full and put a system in place that will streamline your AR processes. Not only can AR automation knock out the challenges on this list, but it can also provide a positive customer experience and save your team time.

At Paystand, we create stellar B2B payment experiences that are quick, easy, and secure for accounts receivable and their customers. Fitted for every ERP, our platform can shave 50% off the cost of receivables, dramatically reduce DSO, and provide enhanced analytics on the payment workflow.

Ready to tackle 2022 head-on with the Venmo of B2B payments? Book a demo with our experts today.