In today’s fiercely competitive business landscape, growth isn’t just a goal; it’s the lifeblood of any thriving enterprise. Focus on external factors like market share, competitive advantage, a barrier to scaling can be within the finance department. Inefficient accounts receivable processes are common growth blockers.
Below are five critical signs your AR process is holding back your growth, and how using the right accounts receivable software can turn things around.
#1. Your DSO is rising
Let’s say that your company’s DSO (Days Sales Outstanding, a key AR metric) is increasing month on month; this means you’re taking longer to collect payments, which harms your company’s financial health.
A higher DSO indicates more money is tied up in unpaid invoices. Rising DSO often is a sign of irregular follow-ups, delayed invoicing, or weaknesses in credit control.
How to fix it:
- Assess customer creditworthiness regularly to minimize risk.
- Offer multiple payment options to make paying you fast and easy.
- Automate all invoicing to eliminate delays and errors.
- Implement an automated AR system to send invoices automatically.
- Track DSO in real-time by customer segment.
- Analyze payment patterns to continuously refine your credit policies.
#2. High Volume of Unapplied Cash
A prevalent issue is unapplied cash in high volume, where despite successful payment collection, funds are not accurately reconciled with open invoices and remain unassigned.
When payments aren’t matched to open invoices, it triggers a ripple effect in your receivables process. It results in unnecessary follow-ups, unpaid amounts, and chasing payments.
How to fix it:
- Use AI-powered cash application tools that automatically match incoming payments, even with vague or missing remittances.
- Encourage customers to use standard remittance formats.
- Reduce manual reconciliation by integrating payment systems with AR and ERP software.
#3. Too Many Manual Touchpoints in Collections
When your team spends too much time manually chasing payments with emails and calls, using only spreadsheets and without a clear system, it becomes a big problem. This is because manual collections are prone to error, difficult to scale, and inefficient. They take up time and resources, while delaying payments and essentially slowing down the team. Plus, they cause inconsistent customer experiences.
How to fix it:
- Automate collection workflows based on invoice age, amount, and risk levels.
- Prioritize high-risk accounts and monitor collector performance.
- Use a unified communication platform to automate all follow-ups.
#4. Poor Visibility into AR Metrics
Say you want to see a clear picture of your cash – what’s coming in, what’s overdue, and where it’s getting stuck. But the lack of visibility doesn’t allow you access to key metrics like outstanding balances, aging reports, or collector effectiveness. As a result, you end up missing key insights. This leads to inaccurate cash forecasts and poor decision-making.
How to fix it:
- Implement a real-time AR dashboard consolidating data on invoices, payments, disputes, and more.
- Integrate AR systems with your CRM and ERP for better cross-team collaboration.
- Track key AR metrics like DSO, CEI (Collector Effectiveness Index), and aging categories.
#5. Frequent Customer Disputes and Write-offs
Your team spends too much time on invoice disputes, deduction claims, billing errors, and customer complaints. These issues reduce revenue, slow collections, harm customer relationships, and lower margins. Disputes stem from billing errors, poor communication, and internal confusion among finance, sales, and operations teams.
How to fix it:
- Standardize invoice formats and clearly state payment terms upfront.
- Automate dispute tracking and resolution workflows.
- Use analytics to identify and fix recurring dispute causes.
Conclusion: –
Your accounts receivable process affects payment speed, growth, investments, and competitiveness. Rising DSO, unapplied cash, manual workflows, poor visibility, and disputes signal issues with your AR process.
