Challenges with receivables & how to solve them

Accounts receivable refer to the funds owed to a company by its clients or customers for goods or services provided. These are crucial for a company's revenue and cash flow, significantly impacting business stability, profitability, and the ability to engage in further growth. As such, managing accounts receivable is a vital financial process that requires meticulous oversight.

As businesses grow and expand internationally, they often encounter an increase in clients, sales, and currencies, which can complicate the receivables process. Unfortunately, despite its complexity, this process is still frequently handled manually, leading to inefficiencies. According to Barclays, 58% of SMEs in the UK suffer from cash flow problems due to unpaid invoices from clients and customers. Without a proper system in place, businesses risk issuing incorrect invoices, missing payments, and facing reconciliation errors. In this article, we will highlight the most common mistakes companies make with accounts receivable and suggest solutions to overcome those.

It is common for marketing agencies to produce copy or creative for clients. In order to accomplish this, they need access to multiple software across multiple teams. Subscriptions were traditionally managed through corporate bank cards, and any spending had to be pre-approved by the finance department.

However, this approach has several drawbacks. A lack of funds on the card can prevent access to the software and disrupt normal business operations. In addition, if a trial is not canceled on time, funds will be deducted from the account, resulting in overspending. Some companies try to avoid this by using subscription management software that tracks payments and trials, but in the end, this is just one more tool that needs to be paid for.

This can be resolved with virtual cards, which can be set up for specific software and specific teams, with recurring top-ups each month to make sure funds are always available and business operations continue without interruptions. Separate cards for each tool used in the company also allow for better visibility and management of all subscriptions. A single-use card can also be used for trials to avoid full payment at the end of the trial period.

Mistakes on Invoices

Mistakes on invoices can occur due to various reasons such as incorrect client information, miscommunication between departments, or simple human error. Any mistake can have a cascading effect, requiring the issuance of a new invoice, which delays the receipt of funds. If these errors are not caught in time, it may result in incorrect profit, debt, or receivables reports and can strain client relationships or negatively impact the revenues. To avoid such errors, client information should always be up-to-date to ensure invoices are sent to the correct people and departments. The best solution to eradicate erroneous invoices is to use an automated accounts receivable tool that stores client information and verifies details before sending invoices.

Entering the same invoice twice into an accounting tool can provide inaccurate reports of profits, receivables, and debts. A dedicated receivables solution with an integration to the accounting tool can prevent this by not allowing the same invoice reference number to be entered twice and flagging potential duplicates during reconciliation.

Late or missing payments relate to the term "Days Sales Outstanding" (DSO) – the time an organization takes to convert credit sales into cash. A long DSO means customers take too long to pay invoices, affecting cash flow and access to working capital. The lack of optimised working capital may negatively impact your growth and reputation with internal and external stakeholders.

While many organizations have migrated from paper to digital and emailed invoices, long payment cycles remain an issue. Missing or late payments are a time drain for finance teams, especially in growing businesses, and the longer the payments go overdue, the more chaotic the process becomes, and the more likely it is that an invoice will be overlooked.

To overcome this, ensure invoices are sent well in advance and implement technology that detects unpaid invoices and sends automatic follow-ups. Offering payment links and multiple payment options can also facilitate faster settlements. Additionally, offering early payment discounts can improve cash flow and relationships with clients, while penalising late payments can decrease the DSO.

Reconciling incoming payments with invoices is a tedious process, especially if not done in real-time or with high sales volumes. When multiple payments of the same amount are received from the same client on different dates, the process becomes even more complicated. Performing manual reconciliation requires meticulously checking every detail on the invoice, marking it as paid or partially paid in the accounting tool, and communicating any issues to the customer.

Automating reconciliation with an end-to-end AR tool like Fyorin, which integrates with your accounting system, can alleviate this burden. Once an invoice is paid, it is automatically reconciled as fully or partially paid in the accounting system, and any outstanding amounts prompt a payment reminder to the customer. Real-time automatic reconciliation not only saves time but also provides a clear overview of incoming funds. Fyorin's added benefit of segregating incoming funds into sub-accounts offers more granular visibility and reporting, helping you identify which clients or products/services generate the most revenue and profit.

This issue is common for businesses operating globally. The best way to avoid delays and fees when trading cross-border is to collect money in the currency of the customer. Due to differing exchange rates at the time of payment, the inability to do so complicates reconciliation in the accounting system. Working with financial operations platforms like Fyorin, which provide an integrated end-to-end AR solution and access to multiple currencies, can save money on cross-border transactions, improve customer satisfaction, and facilitate expansion into new markets.

In summary, having an established accounts receivable process allows the finance team to record incoming payments promptly and match them with outstanding invoices. This helps monitor cash flow, optimise working capital, and manage customer relationships effectively by setting payment terms, chasing missing payments, and establishing lasting relationships with key clients.

A report by Capgemini concluded that companies introducing automation in accounting and finance managed to reduce their operating costs by 25 to 45 percent.

Fyorin’s accounts receivable solution allows you to not only get paid faster but also improve efficiency and lower down operational costs by offering 2-way integration with your accounting tool of choice to:

Reduce manual work by automatically reconciling paid invoices,

Eliminate mistakes and back-and-forth by instantly generating invoices and payment requests directly from the platform,

Improve the cash flow by sending automatic payment reminders for overdue invoices,

Allow you to grow globally and collect payments in over 100 currencies.

Give you a clear view of the money coming in.

We connect with major accounting platforms such as Xero, QuickBooks, Netsuite, Zoho, Miscrosoft 365 and Sage. If you’re interested in automating your receivables on a global scale to save time and money, send us an email to [email protected] or book a demo!