Mar 27, 2023·6 min read

A/R The Silent Killer: 5 warning signs that your clients have an unhealthy A/R process

by Matt DarnerVP, Business Dev. | Co-founder

For businesses issuing invoices, they are unknowingly becoming creditors for clients that like to take their sweet time to pay.

Unpaid invoices are the silent killer of even the most sales-heavy businesses. After all, what good is revenue that goes unpaid? Surprisingly, 16% of all invoices go unpaid. This creates a cycle of having to make more sales to offset the uncollected revenue which in turn makes businesses less selective in their clientele and onboard more clients that are unlikely to pay.

A solid A/R process stops the cycle of unpaid invoices by improving the likelihood of getting paid. No person is better suited to show this to businesses than their accountants. By offering your expertise on all things accounts receivables, you can create a new revenue opportunity for your firm.

Why an unhealthy A/R process matters

Business owners might not actively stay on top of their outstanding invoices. Many small businesses opt to use the cash basis accounting method when it comes to filing their taxes but in reality they are operating on an accrual basis. By not routinely reviewing & following up on their A/R their financial statements will show high sales numbers that don’t represent the actual cash flow.

An unhealthy A/R process means missing out on the money that’s already earned. Given that 82% of businesses fail because of cash flow issues, poor A/R practices are a big problem but also the starting point of a solution.

Helping your clients improve their A/R process gives their business a higher likelihood of collecting payments and solidifies you as a trusted advisor. To get the conversation started, point to these 5 surefire signs of an unhealthy A/R process.

1. Long payment periods

Half of all invoices in the US are paid late. These long payment periods have multiple spillover effects. The longer it takes to get paid, the harder it is to budget based on sales, understand cash flow, or make financial forecasts. This results in not being able to achieve financial goals and making poor decisions.

Start by asking your client what their payment terms are and the average time it takes for them to get paid. Having an average time to payment longer than the terms is a great jumping off point for talking to clients about A/R processes and the potential impact on their business.

The warning signs:

  • An inability to say how much is outstanding and for how long

  • A lack of understanding of how payment periods affect cash flow

  • Not knowing how much money they’ll have in the future

2. No follow up process

Invoices go unpaid for a wide array of reasons, and it’s extremely likely your client has encountered multiple of them. But your client also plays a role. In fact, 85% of C-level executives believe poor communications with their customers leads to nonpayments.

Being consistent with follow ups is essential. Don’t just ask your clients if they follow up on invoices, but what their system for following up is. A lack of structure such as every three days or every week means outstanding amounts aren’t at the top of their clients’ minds. If they don't have a system, CollBox may be a great solution.

The warning signs:

  • Follow ups only happen when they notice the outstanding amount

  • No standard messaging template

  • Inconsistently using different forms of communication like phone calls and emails

3. Never identifying clients as delinquent

It’s easy for business owners to get into the mindframe of more sales means better performance. But selling to the non-paying customers is a massive opportunity cost that adds up.

Identifying clients as delinquent helps businesses focus on selling to the right people. Beyond that, your clients can develop a follow up process specific to delinquent clients. The process can include halting sales, potential interests and penalties, or if need be, escalation to collections or legal.

The warning signs:

  • Too much of a focus on sales rather than collections

  • Overly worried about affecting the customer relationship

  • Rationalizing why payments are taking so long rather than following up

4. No recovery plans for outstanding amounts

The more the accounts receivable balloons, the more important it is to have a recovery plan. Those outstanding payments can fast track financial goals, even if the payments aren’t received in full.

Don’t let your clients fall into the sunk cost fallacy of chasing the payment in full. Once a payment is over 90 days late, suggest shifting the focus to getting what they can.

With CollBox, your clients can put all of that follow up on autopilot and rest easy knowing that the appropriate outreach is happening for each of their customers, every single time.

The warning signs:

  • Not knowing options for dealing with their outstanding A/R balance

  • A sense of hopelessness towards their A/R balance

  • Giving up on bad debt because they don’t want to think about it anymore

5. Using a completely manual process

Doing all invoicing and A/R tracking manually is essentially a full time job. For small to medium sized businesses that think they can’t afford somebody, the task gets passed around with no one giving it the attention it deserves.

Having a completely manual process exponentially increases the amount of time needed to properly tackle A/R tasks. It often means your client is cutting corners on reviewing their outstanding A/R balance, following up with clients, or working on recovery solutions.

The warning signs:

Why your clients have A/R problems—and you should intervene

In most cases, your clients encounter A/R problems because they don’t have the time or don’t understand the importance. It’s up to you to help them understand and make impactful changes.

37% of businesses surveyed in 2019 responded they want an accountant who will help them manage their accounts receivables. Offering accounts receivables management as a service is a big revenue opportunity, but also a chance to strengthen your relationship with your client. It’s a way you can tangibly improve their cash flow and improve their financial health.

How can your firm take on this new work with minimal lift? Enter CollBox.

CollBox connects with top accounting software like QuickBooks and Sage to automate accounts receivables management. With reminders, delinquency warnings, and follow ups all managed by CollBox, you can focus on providing a high value service to your clients with insights and advice. Learn more about how CollBox helps accountants or get started today.

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From gentle follow-up to collections, CollBox is the simple A/R solution for businesses with slow and non-paying customers.