Best Practices for Managing Cash Flow with Collections Automation in Accounting

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Proper management of cash flow is paramount to running an outstanding business. Without proper management, a company can quickly fall into financial trouble and struggle to stay afloat.

An area that plays a key role in cash flow management is collections. Maintaining healthy cash flow isn’t possible if timely and efficient collection of outstanding payments isn’t ensured.

In the past, managing collections could be costly and time-consuming since it required extensive manual processes. Today, with technological developments, businesses have introduced automation solutions to simplify their collection processes, which increase overall efficiency.

So, what is collections automation in accounting, and how do I implement its best practices?

What is Collections Automation in Accounting?

Collections automation in accounting means the employment of technological and automated processes that are aimed at optimizing the management of accounts receivable and, eventually - the collection of outstanding payments.

It integrates sophisticated software tools and systems that facilitate enhanced cash flow management for businesses. This includes the meticulous tracking of customer, client, or debtor financial activities, executed in an organized and efficient manner.

For many years, account receivable and collections management traditionally referred to manual processes - sending invoices, following up on overdue payments, and reconciling accounts. They were quite time-consuming!

But with the advent of collections automation, everything changed. Now such tasks as sending out payment reminders, generating invoices, tracking the status of payments, and deciding when to initiate follow-up communications with customers are in the ‘hands’ of innovations and technology.

So, with the emergence of new technologies, managing cash flow with collections automation became a seamless experience.

Pros of Managing Cash Flow with Collections Automation in Accounting

As discussed above, new technologies in the field of accounting have impacted all processes positively, and managing cash flow with collections automation is no exception. Simply put, it helped positively impact financial operations and organizational efficiency. Want to know why? Here are some pros:

Efficiency and Time Savings

First and foremost, collections automation integrates all complex, time-consuming procedures, including creating invoices, sending reminders for payment, and balancing accounts.

Automating these processes does allow the focus of the finance teams to be on more strategic activities! And these would translate into increased productivity and better time management.

Enhanced Cash Flows

Interestingly, automated collections processes expedite the receipt of payments, resulting in a more consistent and predictable cash flow.

Faster collections mean better liquidity, thus making it easier for businesses to cover expenses, invest in growth, and seize opportunities.

Reduced Errors and Improved Accuracy

Of course, human errors in manual data entry and calculations were a common practice. People were so capable of causing some delays and discrepancies—of course, leading to underperformance.

Using collection automation, however, greatly minimizes the risk of errors. This way, people or businesses get accurate financial records and reduce their need for lengthy error-correction procedures.

Timely and Personalized Customer Communication

Apart from noticeable benefits, collection automation allows you to make timely and customized communications with your partners or customers. In regards to having an analysis of their payment statuses and checking out their outstanding balances, you can remain connected for any reason.

In this way, you can not just reduce disputes but also promote on-time payments and improve customer relations while increasing overall productivity!

Data-Driven Insights

Finally, one of the key features provided by many collections automation tools is robust reporting and analytics capabilities.

Businesses can gain valuable insights into cash flow patterns, the aging of receivables, and customer payment behaviors.

These insights are irreplaceable in making informed decisions, improving financial planning, and identifying opportunities for process improvement.

Veeva Systems + Tesorio = Improved Cash Flow Management

Veeva Systems, a leading provider of cloud-based software solutions for the life sciences industry, partnered with Tesorio to deliver outstanding results.

Through this association, Veeava has witnessed a 50% decline in its 90-day aged accounts and improved cash flow management. They also noticed bad debt write-downs being reduced by 75%, indicating the value that Tesorio brings to the business.

The collections team became 2x more efficient through automated workflows coupled with customized dunning campaigns and simplified operations, which enhanced customer relationships!

Best Practices for Managing Cash Flow with Collections Automation in Accounting

Managing cash flow with collections automation in accounting involves the practical setting of best practices that leverage technology to optimize the process. These practices conserve operations and ensure enhanced financial visibility, accuracy, and customer relationships. Here are some of them:

1. Automate The Collection Process

One of the first and most important practices is automating the collection process. This will save many man-hours in tracking and following up on payments.

Businesses can use collections automation software to automate many tasks, such as sending out invoices and reminders, tracking payment progress, and generating reports, with little manual input.

The more important factor is that this also reduces time because human error is minimized, for instance, when entering data or communicating with other parties.

Here are some recommendations:

  • Outline critical steps in the process of collections that may be automated—generation of invoices, posting payments, and reconciliation of payments.

  • Select an automation tool integrated with your accounting system.

  • Configure automation tool so that it automatically generates an invoice as per sales data, gets invoice numbers, and sends it to customers either by email or a customer portal.

  • Configure validation rules such that in data entry, accuracy is upheld and no errors are committed on the amount or customer information.

2. Utilize Automated Payment Reminders

Late payments may disrupt cash flow management; hence, they add unnecessary stress to the business.

You may use automated payment reminders in an attempt to remind your customers about their pending payments proactively and minimize the chances of missed or delayed payments.

How do I implement it?

  • Set up specific payment reminder schedules for your needs (for instance, seven days before the due date and three days after the due date).

  • Designate a reminder template with customized messages and payment links.

  • Integrate your automation tool through your CRM system to fetch customers’ contact details and payment information.

  • Configure the automation tool to trigger a reminder that triggers at the desired time and over the preferred channels of communication (email, SMS).

3. Establish a Consistent Process for Tracking and Following Up on Overdue Payments

When it comes to managing collections, consistency is vital. Creating a structured process for tracking and following up with overdue payments ensures everything runs smoothly.

Be sure to define stages of delinquency (e.g., 30 days past due, 60 days past due). Draw the corresponding follow-up actions (emails, calls, and escalation). Besides, identify automated workflows for assigning overdue accounts to collections agents based on predefined criteria.

Don’t forget to define triggers elevating the processes for unpaid accounts after a predefined period. And, finally, integrate the automation tool with your customer communication platform for seamless follow-up.

4. Leverage Technology to Streamline the Collections Process and Reduce Costs

Technological solutions are a must for any individual or company today! Not only do they help to streamline any business process, but they also improve performance outcomes.

With different accounting software available, every firm can easily leverage its collections process and reduce costs. Yes, from tracking payment history to improving overall productivity, all these processes help your business maximize profits!

How do I implement it?

  • For instance, consider a collection automation solution that would integrate with the accounting system within your organization.

  • Train your finance team on how to leverage the integrated system as an alternative for duplicate data entry elimination while also shaving off processes.

  • Monitor the integration so that data accuracy and troubleshooting issues are accomplished.

5. Utilize Data Analytics

Data analytics means decomposing data into “parts” to find answers to exciting business questions. Data analysts are different from other people in that they are able to find more information and clues in the data than other specialists can.

The main thing is to see the “big picture” of the business in such a massive array of data and historical payment trends and focus on solving the problem.

What is recommended?

  • Collect and record data from collections automation tools like payment histories, delinquency rates, and customer profiles.

  • Look at general trends in the data to determine higher delinquency in industries or customer segments.

  • Use these conclusions to tailor dunning campaigns, communications strategies, and payment terms depending on particular customer segments.

6. Implement a Customer Portal to Provide Easy Access to Payment Information

The customer portal is a superb way for a company or organization to allow their customers to sign in to their dedicated internal web portal. And, of course, get access to restricted data, but with different access rights.

Such portals offer customers login and password access and are very secure, which makes it possible to provide customers with more confidential, personally related information—about payments or debts.

The implementation of the portal will not only increase the company’s attractiveness but also greatly simplify the work of employees.

Make sure to:

  • Choose a collections automation tool that comes with a customer portal feature or integrate it with a separate solution for the same.

  • Configure the portal to present invoices, payment history, and past-due debts in an easy-to-understand way.

  • Implement mechanisms for secure login as well as authentication mechanisms to protect customers’ data.

  • Communicate the availability of the customer portal to your customers and provide instructions for access.

7. Establish Clear Policies and Procedures

Effective collections management requires clear policies and procedures. They ensure consistency across the organization in addressing late payments & establish guidelines regarding communicating with customers regarding their overdue balances.

8. Monitor Cash Flow Regularly

The cash flow monitoring task involves constantly controlling deviations of actual indicators from normative ones, including payment delays or issues that can threaten collections.

In this case, the values of planned indicators are mainly of importance, with the balance thereof determining directly how effective financial control will be.

Effective and constant cash flow control contributes to making informed decisions, and optimizing budgeting, thereby ensuring that the enterprise has financial stability.

Below are simple guidelines:

  • Assemble automated reports of cash flow that give information such as incoming payments, outstanding balances, and performance in collections.

  • Look at these reports often so as to see if payments are on target at the same time, checking for odd patterns or deviations from normal.

  • Use the data to make informed decisions about resource allocation, budgeting, and contingency planning.

9. Utilize Automated Reporting

As mentioned earlier, automated reporting is integral to process performance and system improvement. If you wish to implement one of the best practices to make running your business easier, such software is your go-to option.

It enables the regular generation and distribution of customized reports that show key cash flow parameters, outstanding invoices, payment trends, and the performance of collection processes.

This automated process does away with the need for manual assembling of data, which takes much time, while ensuring up-to-date information is easily available.

To implement this practice, you only need to choose the proper software, such as Tesorio.

10. Establish a Customer Service Team

A customer service team dedicated to their work can provide support and assistance to customers regarding their concerns regarding facilitating smoother collection interactions.

You should establish a dedicated customer service team with exclusive training. So they’ll be able to handle inquiries, arrange payments, and dispute remedies related to collections.

Don’t forget to implement a communication protocol for the team; it will allow you to collaborate with collections agents and escalate issues when needed.

Finally, continuously monitor and evaluate the team’s performance and customer satisfaction to ensure adequate support.

Bottom Line

In modern finance, collections automation in accounting assumes a leading role, changing cash flow management. Its strength lies in optimizing processes, from efficient invoicing to personalized reminders, ushering in a new era of accuracy and agility. Veeva Systems’ success story is testimony to Tesorio’s transformative effect.

Fueled by best practices, this fusion of technology and finance ensures ongoing stable cash flows and nurtures robust customer relations. In tune with today’s expectations, as businesses explore these automated corridors, they unlock a realm of financial dexterity that fortifies growth and resilience in an ever-evolving landscape!