Reaction time matters in countless situations and scenarios, including playing sports, engaging in conversation, driving, and—most dramatically—responding to a medical emergency. "Reaction time" refers to the time elapsed as the brain notices, processes, and reacts to stimuli in the environment. Our innate desire for a quick reaction time has deep roots in our survival instincts. Millennia ago, our ancestors needed to frequently take swift action to confront (or avoid) danger, and to preserve harmony and well-being.
While decidedly less life-and-death than a medical emergency, the accounts receivable (A/R) process is another area in which success requires excellent reaction time. That's because timing is everything when it comes to managing customer relationships, collecting payments, and invoicing customers. Without best practices guiding staff reactions to such events, the invoice-to-cash cycle can quickly become disorganized and discouraging, leading to disastrous results for companies and customers alike.
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Here are four best practices for revitalizing the A/R process, starting with—you guessed it—timeliness.
1. Follow up with customers within 48 hours.
It's impossible to overstate the value of timeliness in A/R processing. Proper time management necessarily translates to happier customers, high liquidity for the business, and much less stress.
First and foremost, the A/R team must send invoices within 48 hours of delivery of the product or service. The customer will likely feel most positive about their purchase during that window. A company that waits longer to invoice the transaction may give the impression of being lackadaisical in its policies and practices, which erodes trust and can lead to customer apathy.
Move swiftly, responsively, and professionally within the first 48 hours after delivery of the work or goods to encourage prompt payment and positive customer interactions.
2. Communicate with customers clearly—and often.
A raw reaction to environmental stimuli can be helpful insofar as it provides the adrenaline needed to get to safety. But if we only react blindly to environmental cues, we cannot collaborate effectively; this is true both in nature and in business.
For A/R processes to work well, staff need to communicate, clearly and abundantly, with customers around credit-and-collections policies, automated processes, and how/where they can receive in-depth customer support. A high level of responsiveness is key when nurturing customer relationships.
When customers fail to pay on time, it's often because either they're dissatisfied with the product or service the company provided or they have not received enough helpful reminders about due dates. A customer's late-payment cycle will continue if the A/R team doesn't figure out why they aren't paying on time. The best way to approach customers is to assume they are making an effort to meet payment deadlines, then encourage and listen to their honest feedback.
It's also good practice to have an intuitive, easy-to-use customer service portal or other resource that enables customers to express their concerns and frustrations. This gives the A/R team the information they need to fill or remedy any process gaps that might be at fault for the payment delay.
Defining—and then sticking to—clear, detailed credit-and-collections policies is important, as is ensuring that every aspect of the A/R process fits into a cohesive set of systems and interactions. It's also necessary to understand and assist customers that may be having trouble with the company's A/R policies and processes, prior to sending out collection notices.
3. Implement processes that will save time and eliminate errors.
As someone who has worked in the industry for several decades, I can say with confidence that automation is the way of the future for A/R. Automation software streamlines many traditionally manual processes in the A/R workflow, from digitizing the credit risk management process to generating, printing, and sending invoices. Automation technologies can also monitor outstanding invoices, generate timely reminders, and provide a triage perspective on what actions need to be taken based on customer data and business objectives.
The goal is to simplify processing of customer invoices and reduce the chance for human error. The more precise and thorough processes are in fundamental areas of A/R, the more dynamic and creative the A/R team can get when it comes to experimenting with more visionary areas such as customer engagement and branding.
4. Protect your assets with A/R insurance.
Sometimes, despite an organization's best efforts to educate, support, and understand customers, the customers continue to make late payments. Without a doubt, this can negatively impact the business's cash flows and working capital. Investing in accounts receivable insurance can cover the business against losses when, for whatever reason, it is unable to collect payments from customers. A/R is, by definition, a business's revenue stream and its most significant asset. A/R insurance can offer insolvency protection, cash flow relief, reduced concentration risk, and more.
Avoid Flirting with Chaos
When it comes to running a business, acting on instinct alone is a surefire way to flirt with chaos. In the long run, it pays to implement and stick with a set of best practices that support and streamline the high-speed, highly relational world of accounts receivable. Efficiency, consistent communication, automated processes, and proper protection can redefine the A/R workflow, improving the customer experience and the business's bottom line.
Because timing is everything in A/R, implementing these four best practices can help keep the A/R function running smoothly.
Steve Smith is the U.S. COO at Esker. In this role, he is responsible for all operations in North America, South America, and Central America. Smith joined Esker in 2003 as the company's director of sales. Previously, he spent 17 years at Equitrac Corporation as the SVP of worldwide sales, as well as two years in sales at Pitney Bowes. Smith earned his bachelor's degree in marketing and finance from the University of Wisconsin–Whitewater in 1984.
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