Top 7 AR Challenges (And How to Fix Them)

Strategically managing accounts receivable is crucial to maintaining your company's overall financial health. Time-consuming manual data entry and traditional AR processes can quickly wrack up unnecessary costs and mistakes for businesses of all sizes.

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But there's hope: automating your accounts receivable processes takes the guesswork out of managing AR operations efficiently. Read on to learn more about the most common AR challenges and how automating your AR processes can help.

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What is Accounts Receivable?

Accounts Receivable (AR) is the balance of money owed by customers for purchases made on credit. AR teams, which are responsible for managing and collecting these outstanding payments, play a crucial role in safeguarding the financial stability and success of any business.

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AP teams' work includes tracking invoices, monitoring payment terms and following up on overdue accounts. All of these steps keep a steady inflow of cash coming into the business, delivering the necessary funds to cover operational expenses, invest in growth opportunities and maintain liquidity.

What are the Most Common AR Challenges?

There are several common AR challenges that companies face. The following section lists the most prevalent AR challenges, along with their causes and business impacts.

1. Late Payments

Cause: One of the most common AR challenges is receiving late payments from customers. This can stem from a variety of factors, such as customers forgetting to pay, having insufficient funds to cover the invoice, or deliberately delaying payment.

Impact: Late payments can result in cash flow issues for your business, making it difficult to meet financial obligations such as paying bills, salaries and investing in growth opportunities.

Solution: An AR automation tool can help reduce late payments by sending automatic reminders to customers when an invoice is due.

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2. Inaccurate Invoices

Cause: Invoicing mistakes can occur for various reasons, including human error or miscommunication between departments.

Impact: If an invoice has incorrect information or you apply a payment to the wrong invoice, you could experience a financial loss if you fail to collect on all outstanding invoices as a result of the error. These errors add up quickly, even if you're eventually paid, since late payments still qualify as a financial loss because you have less cash on hand while you wait. Inaccurate invoices also weaken your business' reputation and customer relationships.

Solution: Automating AR processes helps reduce inaccurate invoicing by eliminating manual data entry and thus minimizing human errors.

3. Slow Accounts Receivable Processes

Cause: Manual accounts receivable processes can be time-consuming and tedious for teams, leading to delayed collections and higher costs.

Impact: Slow processing times may lead to payment delays which can cause cash flow issues and put a strain on your company’s financial health.

Solution: Automation helps speed up accounts receivable processes, so teams can quickly create invoices and get paid faster. AR automation also reduces back-office costs by reducing the amount of manual work involved in managing AR operations.

4. Insufficient Credit Management

Cause: Many businesses extend credit to customers before adequately assessing their creditworthiness or setting appropriate credit limits.

Impact: Insufficient credit management can lead to more risk of bad debts and write-offs, negatively impacting your company's bottom line. Furthermore, bad credit management often strains your cash flow as you wait for payments from high-risk customers.

Solution: An AR automation tool can help you track historical customer payment behavior, so you can decide whether or not to continue extending credit to customers based on their previous interactions.

5. Ineffective Collection Strategies

Cause: Some businesses lack a well-defined and effective collection strategy to follow up on overdue invoices. This can be due to poor communication, inadequate training of staff, or a lack of resources dedicated to AR management.

Impact: Ineffective collection strategies typically result in a higher number of unpaid invoices, leading to increased bad debts and a significant strain on your company's cash flow. Moreover, it can consume valuable time and resources that could be better spent on other aspects of your business.

Solution: An AR automation and cash management tool like Centime allows you to instantly view the impact of payment delays on future cash flows so that you can strategically plan and prioritize collections using an integrated 13-week cash forecast.

6. Lack of Automation and Integration

Cause: Many companies still rely on manual processes and outdated systems to manage their accounts receivable. These disparate systems often create siloes between business tools and their accounting software.

Impact: A lack of automation and integration results in inefficient AR practices, wasting valuable time and resources. A disconnected process also creates more errors, payment processing delays, and difficulty tracking and analyzing AR data. These issues can negatively affect your cash flow and hinder your team's ability to make informed financial decisions.

Solution: Automating AR processes and integrating them with other business systems will streamline your accounts receivable process, minimize errors, and improve visibility into customer payment behavior.

7. General Ledger Disorganization

Cause: Poorly organized general ledgers can lead to inaccurate records of customer payments and make it difficult for AR teams to quickly access customer information. This can be due to a lack of financial policies, or inadequate training and resources dedicated to managing the general ledger.

Impact: Disorganized ledgers lead to inefficient operations and potential compliance risks if not handled correctly.

Solution: Automating and integrating your accounts receivable processes with the general ledger can help you organize customer records, streamline invoice processing, and simplify financial reconciliation. This will help reduce errors while providing a more accurate picture of your business's overall financial health. Make sure to select a tool that integrates seamlessly with your accounting system for maximum effectiveness.

How Does Automation Improve AR?

Most common AR mistakes are a result of manual processes completed by a team that’s stretched to its limit. When errors arise, your staff has to spend additional time fixing those errors—time that they could have otherwise spent on higher-value tasks, such as financial analysis, forecasting, and reporting.

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AR automation solutions like Centime make it easier than ever to streamline and organize your AR process, giving your team room to breathe. Whether you're looking to enhance your AR department's efficiency, accuracy, or overall productivity, an AR automation solution can help.

AR automation's most common benefits include:

increased cash flow
lower costs
improved client relationships
increased accuracy and fewer human errors
streamlined internal invoice handling
reduced Days Sales Outstanding (DSO)
faster payments
stronger security protections

The #1 Tool for Accounts Receivable Teams: Automation

Effective accounts receivable management is crucial for maintaining a healthy cash flow and ensuring the financial stability of your business. By understanding and addressing the common AR challenges discussed above, businesses can improve their cash flow management and ensure the financial stability of their operations.

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Automation tools are a great way to get started, providing teams with powerful features that make it easier to keep track of customer payments, automate tedious processes, and avoid errors.

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**Deposit placement through ICS is subject to the terms, conditions, and disclosures in the applicable agreements. Although deposits are placed in increments that do not exceed the FDIC standard maximum deposit insurance amount (“SMDIA”) at any one destination bank, a depositor’s balances at the institution that places deposits may exceed the SMDIA (e.g., before settlement for deposits or after settlement for withdrawals) or be uninsured (if the placing institution is not an insured bank). The depositor must make any necessary arrangements to protect such balances consistent with applicable law and must determine whether placement through ICS satisfies any restrictions on its deposits. A list identifying IntraFi network banks appears at https://www.intrafi.com/network-banks. The depositor may exclude banks from eligibility to receive its funds. IntraFi and ICS are registered service marks, and IntraFi Cash Service is a service mark, of IntraFi Network LLC.

^††3.5% Annual Percentage Yield (APY) as of 11/19/24. Deposit rate may adjust to current market rate and may change daily. Fees may reduce earnings.

*Centime is not a bank and is not authorized by any federal or state agency to engage directly in core banking activities.
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*All banking products and services available through Centime are provided by FNBO and are governed by the applicable agreements and related disclosures provided to you by FNBO. Member FDIC.
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‍*While Centime facilitates traditional banking activities (such as the acceptance of deposits or extensions of credit), these services are actually provided by our banking partner, FNBO.
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*Centime may provide support services to FNBO, as permitted by applicable law, to facilitate the delivery of its bank products and services.

**Deposit placement through ICS is subject to the terms, conditions, and disclosures in the applicable agreements. Although deposits are placed in increments that do not exceed the FDIC standard maximum deposit insurance amount (“SMDIA”) at any one destination bank, a depositor’s balances at the institution that places deposits may exceed the SMDIA (e.g., before settlement for deposits or after settlement for withdrawals) or be uninsured (if the placing institution is not an insured bank). The depositor must make any necessary arrangements to protect such balances consistent with applicable law and must determine whether placement through ICS satisfies any restrictions on its deposits. A list identifying IntraFi network bank

Top 7 AR Challenges (And How to Fix Them)

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