Accounts Receivable (AR) is a crucial service in any business, as many teams face a wide range of challenges in day-to-day operations that can lead to late payments, bad debts, or other cash flow issues. According to a Lockstep Accounts Receivable Facts report, nearly 40% of invoices are not paid on time in the United States, and these late payments can have a significant impact on payroll, customer loyalty, etc.
So it makes sense for companies to focus their efforts on managing customer accounts correctly and efficiently. One company that has invested heavily in smooth AR processes is the Santa Monica, California-based company. purple advertisementan advertising agency that works with many clients, ranging from individual bloggers to Fortune 500 companies.
“I think we did a good job [in AR,] especially when you look at our bad debt ratios,” said Kyle Mitnick, founder and president of Advertise Purple. “In our industry, it’s about 10 [percent] at 15% per month, but we are at less than 1%.
However, achieving this was no small feat, as it involved a concentrated effort to improve communication with customers and limit errors in accounts receivable billing. PYMNTS recently spoke with Mitnick and Jonathan MoisanCFO at Advertise Purple, on the challenges faced by AR companies such as Advertise Purple in their day-to-day operations and how they are coping with them.
The challenges of AR
Mitnick said Advertise Purple’s biggest AR challenge is assessing its ability to extend credit to customers, which involves determining which customers have the greatest ability to pay on time and which need or deserve a margin. of maneuver. Another pressing challenge is the prevalence of paper checks and potential issues with postal mail, he said.
“Generally we are on terms of net 30, going up to net 90 in some cases, but given what the pandemic has done to a significant portion of businesses, we are constantly evaluating whether we will allow net 90 , net 60 or do we [make payment] due upon receipt,” Mitnick said. “And now [that] we are back in the office, we had problems with the mailbox and paper checks and missing payments.
Failure to address these issues could be devastating, Moisan pointed out, as late or delayed customer payments could have significant effects on downstream processes. Every payment made by the business requires cash on hand, and if the RA is not up to scratch, that cash on hand could be missing entirely.
“The possibilities are endless on the negative side,” Moisan said. “[Companies are] missing payroll or unable to take distribution for owners or enter into lack of cash [whereby] credit card [are] decreases. The [are] all sorts of potential downsides for companies that aren’t diligent with their AR. »
It is therefore of paramount importance that accounts receivable problems are detected and addressed early before a company’s entire cash flow collapses. For Advertise Purple, ensuring AR transparency and effectiveness requires constant communication and credit checks from clients.
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According to Advertise Purple, maintaining an open communication channel with customers is key in the game when it comes to smooth customer account processes. Its AR teams regularly check with customers for their ability to pay on time and try to remain flexible when they learn of payment difficulties, especially in light of recent economic challenges.
“We do a thorough credit check, ask for references, do all our due diligence on that,” Moisan said. “Our AR team is constantly asking for updates, but we’re obviously forgiving and understand, especially in times of a pandemic like the last year and a half, that challenges arise.”
Yet the world of accounts receivable is constantly changing, with new technologies potentially creating new challenges. Cryptocurrency is a bit of an unknown for Mitnick and Moisan, as changing regulations surrounding this technology could have a significant impact on customers’ ability to pay bills accurately and on time.
“If cryptocurrency becomes the new normal, for example, what are the safeties and regulations around it?” Moisan said. “Are people going to start trying to pay with digital currencies? It’s a rapidly changing era in the digital currency space, and we don’t know what the future holds. [will bring]. But anticipating what’s next, doing as much research, being diligent, and being as prepared as possible will hopefully allow us to do our best with this.
This proactive approach adapts not only to complex, longer-term challenges, but also to the looming roadblocks AR teams face when aiming to make quick and accurate payouts. These departments must anticipate problems with customers as they arise and resolve them where they are, lest complications related to accounts receivable quickly escalate into much larger problems for the companies with which they are located. they associate.