Common Mistakes That Impact the Invoice Remittance Process
However, Forbes didn't have time to cover how invoice remittance plays a critical role in the AR function as the final step in the revenue collection cycle. Or how it provides an extra layer of security to invoicing, prevents fraud, and helps accounts receivable teams reconcile accounts and track cash flow.
In this article, we'll cover the most common mistakes that pop up repeatedly in the Accounts Receivable department when it comes to invoice remittance and how to fix them.
The spanners in your invoice remittance process
Invoice remittance involves receiving customer payments for goods or services rendered and reconciling those payments with outstanding invoices.
Sounds simple enough.
But when hiccups disrupt this process, they can be hard to pin down (especially if you aren't already using comprehensive AR management software such as System1A.)
Where are things going wrong?
Spanner 1: You're waiting too long to request remittances
Dithering when requesting invoice remittances is like pouring molasses into the gears of your order-to-cash cycle.
A simple delay in requesting proper remittance information triggers a domino effect of unhappy customers, fuzzy cash flow projections, and the extra expense of late payment fees.
Provide clear instructions to your clients on what info to include with their payments – because when communication flows, cash flows. Think one-pagers, online portals, and friendly automated reminders. (Discover more here: An AR Team's Guide to Invoice Remittance Advice.)
What accounts receivable software features can solve this?
- Real-time exception reporting: Some AR software like System1A offers a comprehensive platform that alerts the AR team of all incoming, unallocated payments.
- Automatic remittance form tracking: AR automation software can keep track of the remittances requested from customers and notify AR teams when these remittances have been completed and are ready for review.
Are your remittance schedules out of sync with your collection cycles? A side-effect is that you may be collecting on already settled invoices. Apart from the ensuing confusion, how satisfying would it be to get rid of redundant tasks in your workflow for good?
The Accounts Receivable management software features that solve this:
- Smart, comprehensive, online remittance forms that are automatically generated with all supporting information, helping customers complete remittances quickly and easily
- Automated communication to customers based on defined selection criteria and exemption criteria
- A centralized communication facility on one platform where clients can advise on invoices that have actually already been paid
- Electronic generation and sending of statements, credit notes, invoices, delivery notes, and supporting documents
Spanner 3: You're evaluating AR health based on total net AR balances
Why is this a pitfall? Well, it can be deceptive due to the inclusion of unallocated payments. These payments, which haven't been matched to specific invoices, are muddying the view of your true AR performance, giving you a false sense of security by masking underlying issues that demand immediate attention.
What AR software features will fix this?
- An age analysis view that allows AR teams to view outstanding balances exclusive of unallocated payments, rather displaying these unallocated amounts as a separate line item
- Data-driven guidance about where best to focus your collection efforts for overdue accounts
Like night follows day, this leads to delayed payments, impacting cash flow and increasing the average Days Sales Outstanding (DSO). Negative customer experiences soon follow. This pitfall for AR teams increases the risk of errors and inaccuracies in the accounts receivable process, leading to more admin and having to become Sherlock Holmes to track and reconcile payments accurately.
AR software features that make these problems yesterday's news:
- Electronic generation and sending of statements
- Built-in communication facilities allowing customers to advise on the status of outstanding invoices
- Standardized and simple online remittance forms containing a list of all possible invoices that the unallocated payment may relate to, allowing customers to check off the invoice/s to which the payment refers
The costs of an unoptimized invoice remittance process
Delays and errors in invoice remittance can significantly reduce operational efficiency. Manual data entry, rework, and resolving discrepancies consume valuable time and resources that could be better utilized for other tasks.
Inaccurate or delayed remittance information can disrupt cash flow forecasting and budgeting, challenging planning for future expenses and investments. This can lead to financial strain and missed opportunities.
Repeated errors and delays in remittance processing can damage customer relationships, leading to frustration, loss of trust, and potential loss of business.
How can you fix this?
Clearly define remittance expectations for your customers. Do include deadlines, acceptable payment methods, and required remittance information. Chat with your marketing team about how to communicate these guidelines proactively to your customers.
How can we help you to fix this?
System1A automates and optimizes your invoice remittance process by offering all of the features mentioned in this article, freeing your AR team's grunt work to do more great work.
System1A's comprehensive platform offers data analytics tools to identify trends and patterns in remittance data. Any potential issues it finds - like incomplete remittances or discrepancies - are sent to your teams.
Simplify your accounts receivable process with the one application that manages all your company's accounts, communications, deliveries, interactions, payments, receipts, and reporting.
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