Try these 3 strategies to take action on accounts receivable (A/R)
Let’s face it: for many businesses, accounts receivable is a pretty reactive department. When sales acquires new customers, accounts receivable gets the signal to churn out invoices. Accounting staff then spend the bulk of their days managing the collections process.
Constantly running down unpaid bills leaves little time for proactive behaviors, and that’s a real shame. Why? The data gathered in the billing process can be used to draw insights on customer behavior patterns. Those insights can lead to actions that drastically improve your business’s outcomes.
What if the accounts receivable could send its’ own signals, rather than just reacting to other parts of the business? If your invoicing processes are automated, you’ve probably got some extra time to create a strategy for proactive accounts receivable. But where to start? Here are 3 key strategies to take action on accounts receivable:
Identify new revenue sources with existing customers.
Here’s your opportunity to showcase the value of accounts receivable to the rest of the company. Not only can you collect customer payments, but you can also find ways to increase revenues.
Start by understanding all the different products and services your business offers, and the various ways customers are billed. Next, move on to how customers are (or aren’t) paying. Here are a handful of questions to ask when looking at your accounts receivable data:
- What type of payment methods do customers use?
- Do customers pay early, on-time, late, or not at all?
- Do customers make one-time purchases and pay upfront, subscription purchases for a long-term service, or do they buy an expensive product and spread it out using a payment plan?
- Do they frequently return items or ask for refunds?
Using the reporting function in your invoicing platform to slice this data in numerous ways. Are a certain segment of subscription customers regularly going over their tiered plan, causing a variable overage each month? Offer to bump them up to the next level to give them a consistent payment each month, and higher revenues for your business. Are a subset of customers making repeat purchases that could easily convert to a subscription? Make sure they are aware of subscriptions, and offer an incentive to switch them to the subscription model.
These are just a few examples - only you know the best scenarios for your business. Start by analyzing your A/R data and looking for opportunities.
Highlight inefficiencies in existing processes, and recommend improvements.
Since you’ve already dug into the data, keep looking around for processes that could be working better. The same questions above will help you identify problem areas - especially late payers and non-payers. Resolving the cause of late payments and non-payments will help you decrease your days sales outstanding (DSO), and increase your business’s cash flow.
Is there a large segment of customers on payment plans who are still mailing checks? Those checks have to be written, mailed in, and then processed by you - which takes up a lot of time. Consider providing customers with an incentive to convert them to autopay for their payment plans. For customers who are late payers, you could test out a variety of options: automated invoice chasing, early payment discounts, expiring discounts, or automatic late fees could all motivate late payers to make on-time payments.
Target customer segments for custom communications and promotions.
You’ve learned a ton about your customer base through this exercise. Don’t let all that knowledge go to waste. Take what you now know and create targeted communications to increase customer engagement with your brand.
Brainstorm incentives for customers who consistently pay early and on-time. Maybe it’s a discount on a new product you offer, or a sneak peek at one that’s yet to be revealed. You could even introduce a customer rewards plan and start with your early and on-time payers.
For customers who regularly make late payments, consider offering a payment plan with an autopay option. Store this data in your customer’s account and purchase history, so any future purchases can automatically be put on a payment plan.
Once you find the appropriate scenarios, create custom email campaigns for each one to send out to each customer. Record the results of each campaign to see if they were successful. How many customers took advantage of the payment plan offer? How many used the discount for your new product? Use these results to decide if each tactic should become company policy.
If you’re like most businesses, your accounts receivable department is ripe for innovation. Start looking at the data with a keen eye, and run a few experiments based on our 3 strategies. If you find any unique results, drop us a line at email@example.com. We’d love to hear your story.