In an ideal business world, B2B transactions would look like this: a merchant sends out invoices to their buyers, and those invoices are promptly received. The buyers, recognizing their obligations, make their payments on time via credit card, wire, ACH and more, ensuring timely payment processing and a healthy cash flow for the merchants. To complete this virtuous cycle, the merchant's Accounts Receivable (AR) team diligently matches each payment with the corresponding invoice, closing the loop.
Of course, not every B2B transaction can go as smoothly as the scenario above, but just how commonplace are past due payments?
The unfortunate reality is that 47% of suppliers experience delays in receiving payment, creating a negative impact on business operations and cost while the manual and time-consuming process of collecting those delayed payments leads to increased days sales outstanding (DSO) and cash flow issues. Even receiving occasional payments a number of days late has a negative outcome on business processes.
What’s more, 73% of C-level executives say the invoice-to-cash process can negatively impact the customer experience, leading 1 in 3 businesses to consider late payments one of their biggest threats to survival. Let’s emphasize that for a moment: 33% of businesses view late payments as an existential threat.
And as we see the era of customer service making headway in B2B—McKinsey recently reported that 80% of B2B decision makers say they will actively look for a new supplier if their expectations are not met—the issue of late payments must be taken seriously.
Making sure your customers are satisfied is integral to the health of your business, given that it costs up to five times less to retain a customer than to acquire and nurture a new one. Poor communication between accounts receivable teams and their buyers has led to low-quality customer experience, late payment and even nonpayment, according to 85% of c-level executives. What’s more, employing a collections agency for debt collection can severely impact relationships with customers.
It’s clear that payments past due should be taken seriously. But what’s the best way to lessen their burden?
By preventing them from occurring in the first place.
In this blog, we’ll break down how optimizing the accounts receivable collections process can reduce the financial and administrative headache of late payments once and for all.
The collections headache
Given that B2B transactions that follow the ideal world scenario are few and far between, let’s focus on the points of friction that most often occur at the point once the order has been generated and the AR team steps in. Through these various points of friction in the debt collection process, we may be able to better understand how late payments are so common in the B2B world.
Manual receivable processes, believe it or not, are still quite common. And given that managing collections manually is inherently a slower process than utilizing an automated system, 41% of finance leaders consider the speed of the payments cycle to be the biggest challenge in their collections processes. If the finance team can’t promptly notify their buyers of overdue payments, how can they expect the buyer to promptly pay them?
It’s no wonder then that manual collections slow down the payments cycle and are cause for unpaid invoices, not to mention it’s a real administrative burden for financial teams that will be a barrier to scale later down the road.
Maintaining accurate records of payments and outstanding invoices is crucial for effective accounts receivable management for small businesses and enterprises alike. But neglecting to update them frequently or simply just inaccurately will lead to confusion, follow-up errors, and delays in identifying and resolving payment discrepancies. Unless teams keep their records up to date, they can easily overlook late and nonpayments, and rack up every finance team’s dread: bad debt.
They say that the hallmark of every healthy relationship is strong communication. This couldn’t be more true for maintaining a healthy collections process while simultaneously providing a strong customer experience to buyers. But many organizations can attribute poor customer communication to a whole host of problems in the collection process, including late and nonpayment, with 42% of executives reported having lost business multiple times due to miscommunication and 78% of executives believing better communication could have resolved accounts receivable payment disputes.
And as for the impact of miscommunication on the customer experience, 72% of those executives felt their AR department wasn’t customer-oriented enough. Whether that means customers had difficulty communicating and sending payment, or if the systems the organization used for collection weren’t easy-to-use, one thing rings true: a poor customer experience is a huge source of friction and inevitably leads to a higher frequency of late payments.
A lack of visibility
Without the right technology, it is extremely difficult for finance departments to have a comprehensive, dynamic, real-time picture of cash flow, AP and AR. While getting paid should always be a priority, without really understanding how many customers owe late payment, and the subsequent effect on cash flow and business obligations, it’s not always obvious how much effort to spend in collections. As such, without seeing the whole picture, it’s more likely that late payments will be overlooked and their collections won’t be prioritized.
Optimizing AR collections to reduce late payments
Now that we understand the biggest pain points of the collections process, here are some impactful ways to optimize accounts receivable and subsequently reduce the frequency and severity of late payments.
Automation, automation, automation
If your organization hasn't considered automating, consider it now. 93% of US-based CFOs are currently digitizing their accounting operations, which means that speed and convenience are becoming increasingly part of the customer experience and expectation.
Not only that, but now that B2B is moving online at an unprecedented rate, having AR automation in place will set the organization in place for digital growth and scale. This convenience and speed as well as ability to support the organization’s online channels will make it easier for customers to pay on time.
A system that integrates
If inaccurate records are the problem, then an integrated system is the answer. Today’s B2B organizations need a platform that continually updates in real-time and can provide customizable reports instantly. With accurate data and the ability to analyze that data easily, the common mistakes that lead to late payments can easily be mitigated.
Clear and timely communication
It is simply not effective or possible to have a strong and healthy collections process at the industry standard today if your finance team is not clearly and timely communicating to customers about when their payments are due and how much. Sending clear notifications to buyers ahead of time that invoices are almost due can save so much energy and resources on the part of the finance organization, and reduce the likelihood of past due invoices significantly.
The better a picture you have of your finances, the better your decisions and actions will be. Even more so, if you can improve the visibility of payments due to your buyers, and make it easy for them to pay, late payments will occur less frequently and your team will spend less time chasing them down.
Optimizing AR processes with Balance
Balance’s dunning management suite offers a comprehensive solution for to streamline every step of the accounts receivable collections process, with all-in-one integrated system to optimize finance teams’ workflows. The solution features include:
The Buyer Portal provides buyers with a convenient and centralized solution for accessing and managing outstanding invoices. With this tool, buyers can view all their invoices, select payments, and choose payment dates—all in one place.
Here’s what you can expect:
A holistic control center
Your buyers can easily pay for all their outstanding invoices, for both Balance financed and non-financed transactions.
Clear payment flow
The portal ensures a clear payment flow and provides explicit steps for buyers to select invoices they wish to pay, choose the payment date (either today or on the invoice's due date), specify the payment method, and receive a transparent payment confirmation.
Balance’s Buyer Portal offers the same flexible payment options associated with Balance’s checkout product.
With a mobile UX, we made it easy for your customers to pay on-the-go.
The Buyer Portal, with its merchant-branded interface, provides a centralized platform where you can effortlessly view, collect, and manage invoices due from your buyers.
Improved reconciliation process
Buyers have the flexibility to update their preferred invoices for offline payment, and upon receipt of payment, the reconciliation process will be seamless.
In addition to the Buyer Portal, Balance provides dunning automation services to merchants. We ensure that buyers receive prompt reminders through user-friendly interfaces and email notifications. By fostering better payment behavior, you can improve your cash flow and maintain healthier customer relationships.
Balance’s powerful dunning management tool will:
Empower finance teams
Streamline your collections strategy: Handle high volumes of transactions efficiently, enabling your finance team to focus on strategic initiatives rather than manual collection efforts.
Gain a comprehensive view of invoice and customer payment details with Balance’s management software, including due dates, amounts, payment terms, payment history, and statuses all within the Buyer Portal. See metrics, stay in control and make informed decisions.
Drive profitability, growth and revenue
By reducing the causes of late payment issues, you can strengthen customer relationships and foster loyalty. With improved cash flow, your working capital grows and you're well-positioned for sustainable growth.
Balance’s dunning management solution will greatly reduce the frequency of late payments for your organization, all while offering your buyers a consumer-grade checkout experience with the flexibility of multiple payment methods and net terms. Learn more today.
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