Eliminating AR Headaches: The Rise of Automated Credit & Collections

Does your head hurt thinking about how difficult it is to support your company’s accounts receivable (AR) goals with your current credit and collections management practices? These essential functions are challenging enough without the added problems of manual processes, outdated tools and siloed data. Even worse, traditional methods often keep credit and collections mostly separate, hindering their overall effectiveness.

That’s no way to treat two of the most important components of AR — especially when there’s so much amazing new technology you can take advantage of. Let’s explore why traditional credit and collections management is falling flat and how advancements like AI-driven automation are helping businesses better manage risk and more proactively recover receivables.

What is B2B credit management?

B2B credit management is how businesses decide whether or not to let their customers buy now, pay later. The credit management process helps the seller make smart choices about which customers they can trust to pay on time, how high of a credit limit a customer should receive and what will happen if a buyer doesn’t pay.

It typically involves: 

• Creating and enforcing a credit policy: A credit policy is the company’s rules and procedures for granting credit, setting credit limits and defining payment terms. It helps the company maintain an acceptable level of credit risk at all times. 
• Assessing customer creditworthiness: This is determined by reviewing a buyer’s financial statements, payment history and credit score to understand their financial health and ability to pay. It can also involve contacting other businesses that have extended credit to a particular buyer to learn their payment behavior. 
• Setting payment terms: Payment terms establish payment due dates, early payment discounts and late payment penalties. They must strike a balance between protecting the company’s finances and maintaining good customer relationships.

What is B2B collections management?

B2B collections management is all about ensuring the companies who buy from a business pay their invoices. It keeps track of customers’ unpaid bills, reminds customers to pay and comes up with solutions for customers who are struggling to pay.

It typically involves:

• Proactive communication: Reminders are sent before invoices are due to prevent payment delays.
• Escalated communication: If a payment is late, the collections team will contact the customer to discuss the situation and attempt to collect the payment. If this direct communication fails, they may send a more formal dunning letter that outlines the negative consequences of not making payment.
• Dispute resolution: If the customer isn’t paying due to a dispute about the invoice, the collections team will investigate and attempt to resolve the issue, all while keeping detailed records of all communication and actions taken.
• Payment plans: Flexible payment options like installment plans can be offered to accommodate customers' cashflow needs. 

7 frustrating shortcomings of traditional B2B credit & collections management

When traditional, manual, disconnected processes prevent these two functions from working together effectively, it hurts the organization in a number of ways.

Credit & collections management inefficiencies 

• Time-consuming manual processes: Generating and sending invoices, processing payments and following up on overdue accounts uses valuable time and resources that could be better spent on more value-added tasks.
• Slow approval processing: Manual credit decision-making involves tedious reviews and data gathering, which can take days or even weeks, delaying sales and hurting customer satisfaction.
• Asynchronous workflows: Critical information may live in separate systems, requiring manual effort to consolidate needed data and increasing the risk of errors and delays.
• Manual data entry: Data entry from paper invoices into accounting systems slows down bookkeeping and is prone to human error, which can negatively impact cashflow and financial reporting.
• Difficulty scaling: As the business grows, manual processes can quickly become overwhelmed and struggle to keep up with increased volume. 

Higher costs

• Manual processes increase operating costs because they require lots of time and resources.
• High numbers of late payments increase days sales outstanding (DSO) and require more debt collection efforts that can be expensive — especially if they involve legal action.
• Prolonged collections cycles and repeated contact attempts drive up administrative costs. 

Errors & inaccuracies

• Manual processes are more likely to contain errors in data entry, invoice information and payment application, leading to financial losses and difficulties in reconciling accounts.
• Inconsistent data due to human error can result in inaccurate credit decisions, potentially costly losses and overall poor credit and collections data quality.

Lack of visibility & control

• Outdated or manual systems make it difficult to monitor payments across various channels and customers.
• Lack of real-time visibility into the performance of manual processes makes it difficult to track progress or identify potential issues. 

Cashflow concerns

• Inefficient processes can delay payments, meaning longer DSO and less cashflow.
• Inconsistent collections outcomes due to poor prioritization and ineffective efforts make it much more challenging to accurately forecast cashflow.

Erosion of customer relationships

• Delays, errors and little transparency during the credit management process can leave a bad taste in the mouths of your customers.
• Poorly timed or insensitive collections attempts can further strain customer relationships. 

Increased risk

• Manual credit risk assessments can be inconsistent due to employee bias or financial information that becomes outdated in the time between when it was accessed and a credit decision made. As a result, the business could end up extending credit to risky customers, increasing the likelihood of defaults and subsequent write-offs.
• Ongoing customer risk monitoring often takes a backseat when credit management teams are buried under mountains of manual work, leading to increased delinquencies and more bad debt.

And don’t even get us started on additional issues, like lack of documentation, ineffective communication and lower collections success rates. These drawbacks highlight the need for modern, automated solutions for B2B credit and collections management.

No more credit & collections headaches with AI-driven automation

There’s no need to put up with the high costs and low returns of manual processes. Today’s technology is more than a match for even the thorniest credit and collections management concerns. Let’s take Esker as an example.

Esker’s AI-driven automation software is purpose-built for the unique needs of credit and collections management. By centralizing all of your data in one easy-to-access place, it ensures you always have the right information at the right time to make the best decisions for your organization’s financial health. And because it handles both credit management and collections management in a single platform, your teams can experience a truly integrated, cooperative workflow from the initial credit application all the way to the received payment.

So how exactly does AI-driven automation enhance credit management?

Onboard new customers quickly and consistently with customizable credit applications and workflows. Tailor your credit application templates according to your business needs and your customers’ business type, industry, language, etc.

Conduct faster, more accurate credit reviews with third-party credit data integration. Always have access to the latest credit bureau information while reviewing new credit applications or existing customer situations to help you make more informed determinations.

Speed up credit approval while ensuring adherence to your company’s credit policy with automated credit decisions. When a credit application meets your criteria, it can be auto approved, improving efficiency and letting your team focus on higher value tasks like reviewing risky customer situations.

More carefully manage risk thanks to automated notifications. Live notifications let you know when a credit event requires your attention or when a periodic credit review is due, ensuring you spot and mitigate potential credit risks before they cause costly problems.

Simplify customer management with all of your customer’s credit and business information on one screen. Every customer’s information is aggregated onto a single, easy-to-navigate page that includes customer details, invoices, payments, remittance advices, credit information and other useful data. KPIs, reports and graphs give you a 360-degree view of each customer’s situation.

Monitor processes and improve performance using dashboards and analytics. Intelligent dashboards display alerts, real-time data and visual analytics to help you keep an eye on team activity. Even create and share customizable reports.

On the collections side, AI-driven automation allows you to:

Encourage quicker payments from more customers with automated payment reminders. Email reminders about upcoming and past-due payment deadlines are sent to your customers based on pre-set rules and customer segmentation, ensuring nothing falls through the cracks.

Focus your collections team’s efforts where they’ll make the most impact with prioritized task lists. Based on your company’s collections strategy, AI determines the high-value or high-risk accounts that should be contacted first in order to boost recovery rates and maximize resource utilization.

Avoid delays caused by back-and-forth with your customers thanks to a self-service portal. An online customer portal lets clients make payments, see payment status, get invoice copies or account statements and more 24/7, saving your staff time and providing a better customer experience.

Clear up invoice disputes in a flash with improved collaboration and centralized data at your fingertips. Access post-sales information (such as customer data, invoices, collection calls history and notes, tasks, etc.) with a click and easily communicate with required stakeholders to facilitate faster dispute resolution.

Elevate your collections performance with real-time analytics. Intelligent dashboards display KPIs like aging reports, collections forecast, total past due, days sales outstanding and more to give you a clear picture of current productivity and make it easy to spot areas needing improvement.

Put it all together and you’ve got a recipe for:

• Reduced DSO and write-offs that boost cashflow and drive financial growth
• Improved team productivity and morale thanks to automation taking over the manual, menial work
• Increased visibility over processes and performance that supports smarter decision-making
• Centralized data and customer information that keeps everyone on the same page
• Better internal collaboration with key stakeholders that speeds up approvals and resolutions
• Improved customer satisfaction due to more transparent, thoughtful communication and self-service options

See for yourself how much better your credit and collections management could be by watching AI-driven automation in action. These short demos give you the grand tour of Esker’s Credit Management and Collections Management solutions, or check out our on-demand webinar: Building World-Class Credit & Collections Management with Automation. 

Say goodbye to manual mayhem and hello to smarter AR!