Common accounts receivable fails and how you can fix them in FY2025

Are you wondering why your business has so much of its revenue tied up in aging accounts, and an increasing percentage of write-offs? You and scores of other business leaders around the country.

In part, it’s a sign of the times. Australia is in a per capita recession, one that’s on par with that experienced in the early 1990s, when the number of long-term unemployed Australians trebled, hitting a peak of around 320,000 in 1993.

The country’s GDP rose 0.1 per cent in the March quarter 2024 and 1.1 per cent over the past year, according to the March quarter National Accounts.

While the jobs market remains relatively healthy – our national unemployment rate was four per cent in May 2024 – times are tight. Household debts are up and the cost of living crisis is crimping demand, from consumers and businesses alike.

Against that backdrop, payment cycles are elongating, as customers quietly add a few days – or, in some cases, a few weeks – onto agreed terms.

Struggling with sub-optimal AR practices

But challenging economic conditions may not necessarily be the only reason revenue is proving slow to hit your company bank account.

A large volume of aging accounts can also be an indication that your accounts receivable function isn’t operating as efficiently as it might.

It’s possible your management processes are weak, or not being enforced, and that overdue accounts aren’t being handled in a timely manner. Staff may be content to let things slide because they don’t have the stomach, or the training they need, to deal with delinquent customers.

Invoices might contain errors or inaccuracies that necessitate their being revised and reissued, adding unavoidable delay to the payment cycle.

And your sales team could be contributing to the problem too. Extending credit to high risk customers, applying excessive discounts and disregarding standard payment terms may well help them win deals but these actions can result in a whole lot of hassle for your accounts team when the bills come due.

Saying adieu to unpaid invoices

So, what can you do to get your accounts receivable function operating more effectively? The short answer is, a lot.

Implementing robust parameters is the first step. Establishing a clear credit policy that details credit eligibility and limits, payment terms, discounts and return policies will make it easier for your team to do their jobs.

Maintaining accurate master data in your billing and collections systems will allow you to see the credit status and current position of all your customers, and the terms under which they can deal with you.

Establishing precise invoicing practices – ensuring all bills contain a detailed, accurate summation of what was purchased and when payment is due – can put paid to billing errors and the delays that typically accompany them.

Allocating payments correctly, by applying them on the day they’re received and to the specific invoice to which they pertain, and reconciling your accounts frequently will mean an end to muddles about what’s been settled and what’s still owing.

And providing comprehensive training to your team will ensure they feel confident engaging in the collections process.

The automation edge

Improving your revenue lifecycle management processes can be challenging in the absence of the right tools. That’s where automated invoicing and collections technology comes into play. It can accelerate the payment cycle and enable your business to keep on top of its debtors.

With the right cloud-based revenue lifecycle management platform in place – one that combines invoicing, dunning and collections in a single automated solution – you can slash your sales outstanding, manage collections more efficiently and improve cash flow.

Customers can be prompted to settle their late invoices via automatic reminders and your AR team alerted if they fail to do so within the allotted time span. Being able to suspend accounts automatically when payments are overdue means you can limit your losses and protect your cash flow and bottom line.

You’ll also be able to deploy more dynamic collection tactics, provided you opt for a platform with a data analytics function that delivers real time visibility into your debt management process.

Reaping the benefits of a smarter AR strategy

The proof is in the numbers. Globally, businesses using automated solutions have seen dramatic improvements in their financial operations. According to Paystand, automation can cut invoice processing costs by 50 per cent and speed up collection times by 62 per cent.

If being paid on time and in full is a priority for your organisation in FY2025 and beyond, it’s time to put it at the centre of your fintech stack.

Carl Warwick, Regional Sales Director Asia Pacific and Japan, BillingPlatform