Prioritizing Accounts Receivable Management Activities

Among the most effective ways to improve your accounts receivable is by prioritizing your credit and collections activities. This way you can take care of your most critical activities first, such as your largest outstanding invoices, delinquent accounts, etc. before moving on to your less important activities. This strategy will help you collect more efficiently, get paid faster, and increase your cash flow. Unfortunately, without the right tools and processes in place, it can be an extremely time consuming and overwhelming task for smaller A/R departments, which is why many companies struggle to practice this strategy. But there is something you can do to solve this problem in your A/R department.

The Pareto Principle, a common rule of thumb, states that in many events, 80% of the effects come from 20% of the causes. This applies in most businesses where 80% of revenue comes from just 20% of customers. If you have 1,000 customers, that means that probably only 200 of them represent 80% of your revenue and 80% of your past due receivables. Don’t you think you should be focusing on that 200 first? You may want to assign those 200 accounts to someone who can focus on them exclusively and then use the automated system to help manage the remaining 800 customers (20% of your past due revenue). By prioritizing you can keep your lower priority accounts from slipping while your focus is elsewhere.

Systems like Anytime Collect can help you quickly prioritize collections based on this information.  Anytime Collect has a built in action list feature that functions as a “to do” list for users. The list is prioritized with the most important activities at the top. The list is auto-generated upon login and is located in a pop out tab on the right of the screen. The list alerts users to things such as unread emails, files that need to be attached to an accounts, calls to be made, etc. as users work their way down the list and complete the tasks, the tasks drop away and are replaced with other activities for completion.

Real-World Case Studies
Systems Maintenance Services is a professional service firm with 600 employees supporting over $150 million in revenue. Revenue came from 2,000 active enterprise accounts. The company was managing over 3,000 monthly invoices which were very complex spanning months to years for the services they provided with many invoices having thousands of line items. Despite their best efforts, the company’s four full-time collectors were struggling to manage their accounts receivable which resulted in a DSO of 67.

The collectors had a hard time prioritizing their accounts, they wasted time researching account and invoice information prior to a call, and they had erratic collection efforts with no easy way to balance collector workloads.
Revenue per employee was around $250,000. Revenue per customer was $75,000 and average invoice amounts were upwards of $4,000. To effectively manage the workload they probably should have had at least double the staff.

Systems Maintenance Services implemented Anytime Collect in 2012 and gained significant efficiencies in their credit and collections processes without having to hire additional employees. In the first year they were able to reduce DSO to 40 days (excluding just two of their difficult accounts). That’s a 40 percent reduction in DSO meaning that Systems Maintenance was getting paid 27 days faster than the previous year – almost a full month faster! During this time the company continued to grow, adding another 1,000 customers without expanding its staff. In fact, the company was able to reallocate half of one employee’s time to other, more critical business activities.

Check out this YouTube video to hear from Systems Maintenance Services themselves
Credit and Collections


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