Your accounts receivable team is busy. They’re putting in the hours and always have something going on. But that doesn’t always translate to an AR process that actually works.
These situations are familiar to many in AR:
- Payments wait to be applied
- Customers continue to reach out to request invoices or balance history
- Open invoices remain unpaid and team members have to send reminders
- Credit card payments are taken over the phone and manually entered
- Data is entered into spreadsheets
Simply completing the work doesn’t reveal how much unnecessary effort the process requires. Leading AR teams look beyond task completion and use tools to reduce manual work and improve efficiency. In this article we’ll identify friction points that many AR teams face, dive into how to measure delays, and provide a guide to understanding how your AR team compares.
What are Bottlenecks in Accounts Receivable
Accounts Receivable bottlenecks occur in invoicing, payment, collections, or reconciliation where work slows down because of manual data entry, missing information, disputes, or disconnected systems. What can seem like a small issue can compound when there are small issues across the entire AR process.
Where do Accounts Receivable Processes Have the Most Issues
AR teams across businesses and industries face similar challenges when processes are inefficient or disconnected.
| Signs of Friction | What to Measure | |
|---|---|---|
| Invoice Delivery | Customers request copies of invoices. Invoices are sent late. Invoices are sent in the mail. | Customer request volume. Time from invoice creation to delivery. |
| Customer Payments | Customers call to make payments. Payments are made by paper check. Customers do not have a way to pay by credit card online. | Volume of payment requests. Issues with payment completion. |
| Cash Application | Received payments wait to be applied and posted. | Time from receipt to application. Unapplied cash. |
| Collections | Follow-ups depend on spreadsheets. Follow-ups are not timely or on a set schedule. Following up when payments have already been made. | Overdue balances. Time spent preparing follow ups. |
| Dispute Resolution | Questions continue with no clear answer or owner. Customers have to call in with questions. | Time to resolution. |
| Reconciliation | Team memers have to manually compare records from multiple sources. Team members manually check invoices and customer balances to compare to the GL | Time spent on process. Unresolved issues. |
How do you identify bottlenecks in your AR process?
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Document your AR process
To identify bottlenecks, it’s important to first map the process from start to finish and evaluate each step for delays and unnecessary work. Talk to each person who is involved in each step of the process to get their feedback on what is working and what could be improved.
- Where is the most time spent?
- What duplicate entry is being done?
- What are the most common questions or concerns from customers?
- How much time do you spend answering customer questions?
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Track work and wait time
Follow multiple invoices from initial generation through payment and reconciliation. Identify any delays between steps, manual efforts, or issues that are noted. Record times where data has to be manually entered or duplicated, any time a spreadsheet is used outside of the ERP or accounting solution, when team members have to switch between systems, or other areas of manual effort.
Take the Quiz – What’s Slowing Down Your AR Team
How Does Your AR Team Compare with Other Teams?
iSolutions surveyed finance and AR professionals actively responsible for invoicing, collections and cash application within their organization. That study produced benchmarks for today’s AR teams.
| Average Time to Payment | 21 – 30 Days |
|---|---|
| Percentage of AR Processes Automated | 26 – 50% |
| Confidence in AR Data Accuracy | 40% very confident, 59% mostly confident |
Top Priorities in Accounts Receivable
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Lower processing costs
When evaluating payment processing costs, consider both credit card fees and the time your team spends collecting, accepting, and applying payments. Bottlenecks and manual work can quickly increase the total cost of getting paid.
A payment solution with surcharging capabilities can help offset credit card processing fees by passing an eligible fee to customers, where permitted. Offering an alternative such as ACH without an added fee gives customers a choice in how they pay.
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Reduce overdue accounts
Automating collections management can quickly help to reduce overdue accounts. Scheduled reminders that include specific account information and click to pay links are not only convenient for an internal AR team, but make for faster payment from customers.
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Increase automation
AR is becoming a strategic department to drive cash flow, customer experience, and business resilience. As companies grow and customer expectations rise, those organizations that have manual processes in place will find it difficult to keep up. The companies that will succeed will be the ones that move on a path of proactive rather than reactive, putting technology and tools in place to automate manual tasks to eliminate friction before it becomes a significant issue.
Automating internal processes removes room for error while also freeing up time and providing a better overall customer experience.
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Improve customer experience
When customers can easily access account information, make payments, and stay up to date on shipments and orders, they spend less time searching for answers or contacting your team. A self-service customer portal puts that information at their fingertips, making it easier to do business with you while reducing routine requests for your AR team. The easier it is to do business with your company, the more return customers you will have.
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Better reconciliation workflows
Better reconciliation workflows make it easier to match payments, deposits, and processing fees with your accounting records. By reducing manual comparisons and quickly identifying discrepancies, your team can spend less time investigating differences and close the books with greater confidence.
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Improve payment flexibility
Providing additional options for customers to pay is an easy way to accelerate payment and increase customer satisfaction. By providing the option to pay by credit card or ACH, and save payment details to their profile, customers can pay how they want, quickly.
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Improve reporting and visibility
Accurate, real-time information helps your AR team set priorities, identify issues, and understand what’s working. Without it, outdated balances and incomplete payment records can lead to unnecessary follow-ups and missed overdue accounts. Clear visibility into outstanding invoices, payment activity, and collections performance helps your team act sooner and make informed decisions.
Which Metrics Reveal Bottlenecks in Accounts Receivable?
Metric Implication
Days Sales Outstanding How long receivables take to collect payment
Percentage of AR past due How many accounts are overdue
Payment application time How long it takes to apply payments to accounts
Manual Hours Effort and time it takes to invoice and process payments
What do AR bottlenecks cost your business?
The cost of AR bottlenecks is three-fold.
Employee Resource Time and Effort
When team members spend time on repetitive tasks and corrections, they’re costing your business time and money. By automating tedious tasks, you can reallocate your team members to more valuable activities.
Poor Customer Experience
When customers have to contact your team to request invoices, check balances, or make payments over the phone, simple tasks become time-consuming. These extra steps can delay payments, frustrate customers, and increase your team’s workload.
Difficulty Scaling the Business
As the business grows, AR bottlenecks can make it harder to keep pace with increasing invoice and payment volumes. Manual processes that once worked can lead to backlogs, delayed collections, and more errors. Without more efficient workflows, growth adds pressure to your team and may require additional staff just to keep up.
Take the Quiz: What’s Slowing Down Your Accounts Receivable Team
Which AR bottlenecks should you fix first?
The priority AR bottlenecks to immediately address are those that happen most frequently, consume the most employee time, or directly impact payments. With the right software solution in place, most AR bottlenecks can be resolved immediately through process improvement and automation.
How can Business Central users reduce AR friction?
While Business Central is powerful out of the box, it has key gaps in AR automation and payments. iPayments for Dynamics 365 Business Central solves key AR challenges and bottlenecks with the functionality that AR teams need to automate processes and collect payments faster.
| Key Area of Accounts Receivable | Solution |
|---|---|
| Invoice delivery | Invoices generated in Business Central are emailed to the customer contact and include an embedded click to pay link, reducing the steps required to pay an invoice. Automating invoice delivery speeds both delivery and time to pay. Customers can search their inbox to find invoices, and automatic reminders can help accelerate time to payment while eliminating manual processes within the AR team. |
| Customer Payments | With iPayments for Dynamics 365 Business Central, customers can make payments online either through a click to pay link, e-commerce widget, or through the Customer Portal. Repeat customers are able to securely save their payment information for faster check out. BC users can allow customers to pay by credit card or ACH, and can choose whether or not to apply a credit card surcharge to pass along applicable fees. |
| Cash Application | iPayments is integrated directly into Business Central, so cash is applied directly to customer accounts as soon as the transaction is completed. With no manual intervention required, payments and cash are applied with no delay. |
| Collections | Advanced Collections Management is included in iPayments and helps to streamline overdue payments, reduce Days Sales Outstanding, and increase cash flow. Collections helps to automate reminders, track customer interactions, and help you collect faster and smarter. Collection reminders are sent automatically for past due invoices based on aging bucket. Templates can be customized including collector and delinquent alert messaging. Invoices are automatically emailed upon posting or when a credit memo is posted. Aging buckets can be configured by due date, posting date, or document date. Automate plan sequences for balance due, delinquency notices, or collections which halts automatically upon payment received. |
| Dispute Resolution | Customers can send messages or disputes directly in their account in the Customer Portal. That information appears in Business Central, where AR team members can react in real-time, make any updates on the account or respond back to the customer. That information is logged on the customer account. |
| Reconciliation | All reconciliation is done in real-time, automatically with iPayments for Business Central. |
If you’re ready to eliminate the friction and bottlenecks in your AR process within Business Central, reach out to the iSolutions team. We can give you a one-on-one demo and answer any questions you may have.