Accelerate Your Collection of Accounts Receivable

July 27, 2022

There are many ways an organization can drive revenue. Even a modest amount of variety in payment options can increase profitability and may be better than overwhelming customers or clients with an array of options.

While many efforts toward improving cash flow and profitability focus on pre-sales and point-of-sale opportunities, there is a significant advantage to be gained from applying the same thinking to an organization’s collection process.

Having a range of available credit terms is always a good practice, but ensuring choice when it comes to payment options can also markedly improve the efficiency of your accounts receivable collection process.

Whether during the initial payment processing phase or as an available adjustment to an existing account, improving ease and convenience can increase customer satisfaction and loyalty. This also typically accelerates the rate at which customers pay down balances, streamlines an organization’s collection process, and relieves staff of accounts receivable duties.

Enhancing the number and type of payment alternatives on offer requires a strategic approach with the goal of adding options to remittance methods while not unduly increasing the complexity of payment processing.

Options That Speed Up the Collections Process

Chief Financial Officers, Treasurers, and Accounts Receivable Managers who wish to improve both the efficiency and timeliness of their collection process and payment processing activities should consider optimizing their payment methods and how its impacts reconciliation. The following strategies aim to improve cash flow and decrease outstanding accounts receivable balances.

Customization of expedited payment options. Electronic payment options can help automate payment processing, improving cash flow and the speed at which posted funds can be reconciled. Efforts focusing on merchant services; in-person or online transactions; ACH instructions; or other electronic invoicing methods—whether singularly or in conjunction—are likely to bring the most benefit. Matching transaction and remittance data with the system of record can also improve an organization’s operating ledger profile.

Electronic billing. Establishing a secure electronic delivery standard—by email or other online portals—can simplify invoice and statement delivery while offering the recipient expanded payment options. This results in decreased processing and posting times compared to other methods, and it reduces the likelihood of any administrative errors causing delayed payment. Email delivery can be person-to-person, business-to-business, or a combination of the two.

Credit term options. Considering which aspect of credit term options may deliver the most benefit to customers, internal staff, and operations can inform how these options are offered to customers. Providing electronic, ACH, or other viable remittance details, and the option of outside payment or debit from an established account can include specific date processing in a real-time payment environment. Traditional payment methods can remain in place to provide additional convenience. Isolating these payments can help speed up the processing and accounts receivable posting.

Fraud Management. Electronic payments help alleviate the risk of financial fraud with increased security. This allows payors to make remittances that capitalize on available credit terms, and it also minimizes the risk of delinquent payment fees.

Companies can adjust how available payment options are organized and presented to payors as needed and in an ongoing fashion—regularly reviewing may help identify areas that have opportunities for further improvement.

Final Thoughts

Offering more options and a greater variety of payment terms offers value and convenience to your customers, simplifies internal accounts receivable operations, and provides insights into an organization’s cash flow.

Companies can use these insights for strategic investment planning of their assets, or an individual’s assets, among other things.

For more information regarding increasing payment options and optimized payment and credit terms, contact your First Western Trust Treasury Management Advisor today.