System 1A: The Power of Strategic Accounts Receivable Management
In this piece, we're looking inward at the pivotal role of strategic Accounts Receivable (AR) management in fostering business scalability - starting with the AR team.
The first key to true growth?
Culling the dead roots in order to reallocate critical resources to areas that need it most - areas that perpetuate growth, not hinder it.
This article explores the multifaceted strategies and best practices that businesses can employ to optimize their AR processes, emphasizing the significance of System1A - a holistic approach that streamlines operations, enhances cash flow, cultivates client relationships, and propels overall business expansion. But first, let's start with why this is all relevant to your AR team, why it matters, and why you need to keep reading (CFOs, we're talking to you).
Challenges are normal. Ignoring them? Not so much
It's important to know that your competitors are dealing with the same challenges that you are. We go into these specific challenges in depth in our credit controller's guide to accounts receivable automation software. But for those who need a refresher, these challenges include:
- Missed follow-ups on overdue invoices when collecting payments
- Writing off outstanding receivables as bad debt
- Errors on bills and invoices
- Incorrect payment allocation
- Lack of cash flow
But there's a catch. At System1A, we don't see these as challenges but rather as consequences. The consequences of archaic, manual AR processes, which have a firm grip on many modern-day companies, causing critical cash flow bottlenecks. Now, before you shrug and think, 'that's not us,' it's worth mentioning that while no company intends to adopt weak accounts receivable policies, they often sneak in under the radar, bringing along with them unintended consequences.
What is System1A exactly?
In brief, System1A is financial information symmetry integrated with Account Management Tools. Great! Now, what does that actually mean? For starters, it's one application to manage all your company's accounts, communications, deliveries, interactions, payments, receipts, and reporting.
By leveraging this holistic (and automated) accounts receivable management software, AR teams can implement best practices to break the credit-to-cash bottleneck, reduce late payments, and elevate your business without having to drain resources or additional time capacity come crunch time.
Which best practices? Let's take a look.
Best practices for strategic accounts receivable management
Know your KPIs - then improve them.
It's not just about surviving another month-end. Instead, AR teams can leverage intentional strategies that allow them to seize proactive growth opportunities within AR management. This starts with using the right KPIs. The right KPIs to keep track of include Average Days Delinquent (ADD), your Days Sales Outstanding (DSO), Collection Effectiveness Index (CEI), and Turnover ratio. The only thing is that collecting enough information to establish and review these KPIs takes time, something AR teams have very little of. Moreso, knowing your KPIs is one thing - changing them and improving them is a whole other ballgame. Take your DSO, for example.
A high Days Sales Outstanding (DSO) means that too many clients take too long to complete their debts or ignore the agreed payment terms altogether. In order to reduce DSO, AR teams must streamline the debt collection process and AR management as much as possible.
However, what's more critical is the fact that AR teams must be able to leverage more granular KPIs as well. Rather than relying on a high-level metric like DSO, try to identify the metrics that impact DSO. After all, even if you know sales are a certain amount of days outstanding, do you know if that's appropriate for your industry? It's therefore important to also consider granular metrics such as:
- Distribution of outstanding invoices - what proportion are overdue relative to their terms
- Proportion of unallocated payments
- Proportion of collections relating to current amounts (as opposed to due amounts)
- Does the sales team override standard terms or account credit limits?
System1A helps AR teams do this by automating manual tasks, auto-populating analytics reports and setting up a clear debt collection process and strategy that incorporates the required data, tools, and time for strategic accounts receivable management.
Centralize customer master data
Your customer master data is critical to the success of your entire Accounts receivable process. Keeping it centralized is a common shared goal for most AR teams. Often, AR teams try to achieve this by implementing more tools, software, and technology to fill the gaps and cracks. However, sometimes, too many applications, tools, and software can further complicate the process.
With this often being the case, credit controllers can easily get lost in a whirlwind of tracking data from multiple ERPs, document storage, client communication, and reporting tools, struggling to align and match the data with each other from one system to another.
System1A challenges the idea that you need more tools. Instead, you just need one
end-to-end centralized tool that integrates and supports the entire accounts receivable process. System1A accurately reflects all client data, including credit limits, payment terms, discounts, tax rates and return policies, and any other relevant terms to specific customers, in one centralized solution, so those terms are accurately reflected in your billing and collection systems.
Streamlined and transparent AR communications
Regarding customer payment, communication is pivotal, both with clients and within an organization. Often, AR teams feel as if they need to compromise relationships in order to improve the collection process.
However, with the right tools in place, finance teams can improve CX and communications while simultaneously improving the credit-to-cash cycle. In practicality, System1A helps achieve this by automatically updating customer data and payment information regularly, sending proactive, automated reminders on payments about to become due and providing customers with a simplfied, easy-to-complete remittance process. This helps eliminate the fact that a large portion of late payments can be attributed to poor or insufficient communication.
But to be frank, most of these best practices sound easier said than done. So here's how we do it.
System 1A: The Power of Strategic Accounts Receivable Management
System1A connects with your ERP
It's easy to assume that your Enterprise Resource Planning (ERP) negates the need for an AR automation solution. After all, your ERP system is a critical part of running a business. Its integrated suite of software applications allows a company to manage almost every aspect of the organization. It's your north star, especially if the databases of your ERP system include inputs from various departments such as HR, manufacturing, marketing, sales, and accounting.
But there's a catch. An ERP does not an AR management solution make. Although ERPs are great for centralizing cross-company functions , they only address each of these functions at a high level and do not speak to the nuanced challenges that AR teams face daily within the collection and payment process. When it comes to looking at financial data at a more granular and departmental level (like accounts receivables), accounts receivable software fills the gap - software like System1A.
System 1A supports a range of ERPs and taps into the relevant data to ensure nothing slips through the cracks. The system then utilizes that data to provide AR teams with the required tools and technology to provide structure to their workflow in one unified platform for managing all related tasks.
To simplify, yes - your ERP has all the data you could possibly need. But that doesn't mean it's readily (or easily) available. Therefore, extracting said data and effectively utilizing it to streamline your operations in a practical and resourceful way is a nearly impossible feat without software that knows where to look (and what to do with it).
System1A, however, has been specifically designed to do just that (in under 45 minutes, in fact) and connects directly with ERP or accounting systems to streamline customer invoices, payments, and credit information and create a single source of truth and financial symmetry for accounts receivable data.
And then? Let's talk features.
System1A account management tools
Apart from providing unparalleled financial information symmetry, AR teams also leverage the following features once System1A is on their side.
Effective Collection of Accounts Due
Use System1A to send all required documentation to facilitate payments with a few simple clicks. Also, automatically link POD's and invoices together with any other supporting documents to streamline the collection process. System1A also helps AR teams avoid any snags by detecting and identifying any incomplete documents and information necessary to ensure payment.
Complete Customer and Supplier Document Management
System1A enables AR teams to manage all documents that are required based on defined access rights. This creates holistic and transparent document management for both teams and clients, as the system allows you to search, view, and send these documents whenever needed. More importantly, the account management tools allow you to find and download documents immediately to meet audit, customer, and supplier requirements - no fuss. This dramatically reduces administrative tasks and costs by having a digital archive that is secure, centralized, and user profile-based.
Efficient Communication and Tracking
Spend more time on business-critical tasks while you automate communication with customers based on required selection criteria. Additional communication and tracking features allow AR teams to leverage detailed reports that provide information on email delivery status and communication tracking.
Curious about the rest of System1A's features and benefits? We take a deep dive into our ecosystem here: A step-by-step guide to System1A.
Focus on the exception while we automate the rule
Ultimately, you have a powerhouse team already. We know it, and you know it - you hired them for a reason, after all. System1A simply helps AR teams leverage the right tools and solutions to break the credit-to-cash bottleneck and do what they were hired to do.
By automating the mundane, repetitive, and time-consuming AR management tasks, System1A allows the opportunity for teams to shift their focus elsewhere - to reallocate their energy to the exceptions, the outliers, and the 'bad' debt, without feeling backed into a corner or pressed for time.
Now, let's get into the nitty-gritty details with the step-by-step guide to collaborating with System1A. Alternatively, perhaps you'd like a high-level overview of accounts receivable automation software as a whole.
If you'd like to experience System1A for yourself, we've got you covered too!
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