Accounts receivable (AR) as an asset is an important concept for treasury and payments professionals to understand. Because it is reported as an asset on the balance sheet, AR is more than just a routine task that needs to be performed. Improving AR can actually build cash reserves and help the organization better manage its money.
Matt Skudera, vice president at the Credit Research Foundation and a former credit executive, offers these three tips to improve AR as an asset:
- Know your customer (KYC) is a big AR pain point that can be avoided. “You really need to understand who the legal entity is, and you want to make sure you have them listed accurately so you know who you are selling to,” he said. Tip: Make doubly sure you set up the account correctly in your customer master file and database to ensure invoices are going to the purchase that is submitted in your purchase order or signed a contract. Extra diligence at the outset can prevent many KYC problems.
- Technology has created an avalanche of payments and invoice systems that confuse treasury and payments professionals. “What we're finding in the marketplace is that it’s no longer just a simple invoice that gets mailed to a customer and customer remits a payment,” Skudera said. “So people are spending a significant amount of time trying to resolve issues with customer portals.” Tip: There’s no substitute for continuing education. Credit executives should seek training for staff to stay up to date on electronic payments portals. Meanwhile, staff should not be afraid to ask their counterparts about their technology. “Very simply, try to find a person to talk to,” he said. “And because it’s point to point, system to system, it tends to be tech person to tech person versus payments professional to payments professional.”
- Deductions continue to be a problem for AR. “When somebody doesn’t pay or remit in full payment, trying to resolve why that has happened is an issue,” Skudera said. Tip: Adding head count may help. “We’re finding that adding head count in many cases helps support the many different types of technological challenges and processing challenges,” Skudera said.
- Too many processes and exceptions for too many customers. “It’s very easy to fall into the trap of making exceptions or having one AR employee follow one procedure and another AR employee follow a slightly different one,” Skudera said. Tip: One of the most important steps an AR department can take is to standardize its processes. “Focus on what you can control instead of worrying about customers,” Skudera said. “All of these pain points—KYC, diverse technology—can be significantly improved if your organization really takes the time to create a standardized AR process. How do you onboard a customer? How do you invoice a customer? Thinking about these processes is a great way to start the standardization process.”
While it’s common for organizations to empower staff, Skudera said that credit executives must set expectations on how the AR process will work—right through to the customer. “I am surprised at times to find out that there is a significant amount of decentralization of processes,” he said. “I certainly see a movement toward centralization. But this is a case when it really should be driven from the top down.”