The Most Important Function in Your Business
Accounts receivable is arguably the most important function in your business. What could be more important than collecting cash to fund your day-to-day operations? Without cash you cannot pay employees’ salary, Yet despite its fundamental importance to the business, accounts receivable rarely receives the right level of visibility within the organization. Champagne corks are popped when a new sales order is signed, but no one (outside of finance) celebrates when the customer’s payment hits the wire.
Perhaps the hardest part of AR is chasing delinquent accounts. When accounts are past due, the AR team has a variety of tactics that can be employed to collect the outstanding balance. Popular strategies include sending email reminders, resubmitting the invoice, and reaching out to the customer’s AP organization for a status update. In most cases, these accounting-led strategies are effective at getting invoices paid. Although, the payments are not always collected as fast as they could be. However, in other cases, the accounting team’s outreach is unsuccessful. Sometimes unresponsive customers sit on cash until an escalation forces them to finally pay.
Partnering with the Business to “Cash In”
The most effective way to get to a delinquent account to pay usually requires getting the attention of the business sponsor(s) or end-user(s). More so than the individuals in the customer’s AP department, business sponsors and end users are highly motivated to ensure that the account is in good standing to ensure to prevent an interruption of service. The accounting team typically does not have a direct relationship with the business sponsors or end users so they will need to partner with the other parts of the organization to reach them.
- Sales – The account executive that originally closed the deal. S/he often has the best relationship with the customer.
- Customer Success – The account manager that owns the day-to-day relationship (after the sale) including renewals, upgrades, and on-going projects.
- Customer Support – Agents interact with end users when/if they reach out for assistance via chat or phone.
- Executives – C-level execs often build top-to-top relationships, especially with larger accounts.
Depending upon the relationship and size of the account, different groups will have different levels of success in resolving late payment issues. In some cases, the customer success manager may be able to get traction by referencing the outstanding balance on a weekly status call. In other cases, an escalation to a c-level executive could be required to secure the payment.
Changing the Corporate Culture around Collections
When a sales rep or customer success manager on account team is successful at getting invoices paid, the individual who “worked their magic” is usually lauded as a hero. S/he stepped outside of his/her assigned responsibilities to do a “big favor” for accounting. But if cash collections is the oxygen that fuels the business, then everyone in the organization should be motivated to drive airflow through the lungs.
Many of the finance organizations that are most effective at optimizing cash inflows have been able to master the art of partnering with the rest of the business to secure timely payments from customers. These organizations have changed the corporate culture from one where “accounting does collections” to a new mindset that “everyone is in collections.”
- Which invoices are outstanding
- Which payments have been made
- Which accounts are past due
Visibility to the Financial Status of Accounts
- Carbon Copy – Provide customer relationship owners with copies of all the customer communications. Whenever the customer is notified about a new invoice, expired credit card, or payment confirmation, the internal account team is notified as well. Sales reps and customer success managers would be blind copied (bcc) on dunning notifications being sent to customers. Internal account teams would also gain access to the customer billing portal to view all historical invoices and payment transactions. The idea is that the internal teams can see whatever the customer sees.
- Push Notifications – Send real-time alerts to the internal account teams as financial transactions occur (or don’t occur). For example, you might send email alerts, text messages, or slack notifications to the assigned sales reps and customer success managers each time that an invoice is paid, a payment deadline is missed, or an aging milestone is breached (e.g. 60 days past due).
- CRM System – Post updates regularly to the business applications that sales, customer success, and technical support use on a day-to-day basis. The billing and accounts receivable systems could be integrated with applications such as Salesforce, Gainsight, and Zendesk to have the latest financial details for each account. When a sales rep, customer success, or help desk agent pulls up an account s/he would have access to the current account balance, historical invoice amounts, and payment transactions.
- Financial Systems – Provide direct access to the financial systems of record generating the invoices and tracking the balances for each account. In other words, sales and customer success managers would get read-only access to reports about their assigned accounts in the billing and accounts receivable application.
Each of the communication strategies has advantages and disadvantages. Email alerts might be too noisy – effectively cluttering inboxes and not resulting in any follow up. Posting updates to the CRM might be too passive. Financial updates in a CRM could be overlooked – especially if reps have hundreds of accounts to manage. Providing access to financial systems might introduce too much risk or be impractical if the appropriate user controls are not available in the system. In many cases, a combination of options may be the most effective communication strategy. For example, using push notifications only for past-due accounts and posting other financial data to the CRM system.
If cash inflows are a priority it’s worth taking the time to explore the different communication options available to keep account teams in sync with the financial status of accounts. Selecting the best model might require some trial and error to see what works within your corporate culture.