Manual AR processes: the place where cash gets stuck

Deep in their hearts, many CFOs know their AR (Accounts Receivable) process isn’t running at full efficiency and doesn’t match its potential. Invoices leave the system consistently, but then the process moves to a cumbersome pipeline of spreadsheets, inboxes, and manual reminders. And that’s when and where things get hazy. No single person has a complete picture of what is overdue, who has been contacted, and what was agreed. 

Cash doesn’t get stuck because customers refuse or fail to pay. It gets stuck because the process that should be responsible for a smooth collection flow is held together by an inextricable tangle of manual workarounds. The collection process effectively breaks down the moment invoices leave the system.

This blog takes a closer look at the drawbacks and cost of ineffective manual AR processes, but also unveils the secrets behind a better, more structured AR process.

Siloed systems? Prepare for invisible handoff failures

Every day that a finance team operates in siloes, it loses more than just time. It also sacrifices oversight, context, and, ultimately, trust and the power to innovate and improve on existing practices. In a fragmented information landscape, accountability disappears the moment follow-up is needed. Work gets stuck at the boundaries because there is no clearly defined operational blueprint.

Who acts? And when and on what basis? Many of the details surrounding these essential questions are left up in the air.

In such a siloed and manually-centered AR environment, follow-up tends to depend on individual initiative rather than on a structured workflow. This problem is especially common in finance teams that have grown strongly over time without ever formalising their AR process.

Manual dunning is not a process, it’s a habit

Dunning management is an essential component of every business’ financial stability and operational flexibility. A serious drawback of manual dunning is that it has the nasty habit of creating inconsistency by design;

• Reminders go out when someone has time, not when the process actually requires it.
• Follow-ups happen “when the team has free time”, a type of workflow that is pretty much the worst recipe for the relentless and scheduled precision that AR processes call for.
• A lack of strategic prioritisation is another pitfall of manual dunning. In traditional systems, collectors often work through lists alphabetically or apply the principle of the oldest invoice first. 

If you work like that, you may fail to identify that an €80,000 that is 2 days late has a much higher business priority (and risk!) than an €800 one that is 20 days overdue.

Manual dunning also often suffers from a lack of real-time data synchronisation, a problem that can become a major cause of friction between finance teams and your valued customers.

What structured AR actually frees up

A more structured, well-defined and consistent process is sure to bring a welcome sea change to your daily AR management environment. You will reap the benefits from:

• A more predictable cash flow. A well-executed dunning process swaps insecurity for predictability. The result? Timely cash inflows which are essential for meeting daily operational expenses such as payroll, utilities, and inventory purchases, but also for grabbing exciting opportunities (expanding operations, investing in new projects, pursuing strategic acquisitions) to grow your business.
• Fewer escalations. You increase the likelihood of timely payments and are able to spot problems that could lead to cash-flow difficulties before they deliver you serious headaches.
• More effective time management and grateful employees! Your finance teams spend less time chasing chasing and more time and focus on exceptions that actually require sound and expert level human judgement.
• An effective dunning process, that highlights empathy, clarity, precision, and clear communication, enhances customer relationships instead of damaging them.

Discover where your AR process breaks down

An effective dunning process is not only crucial for maintaining healthy cash flow and long-term financial health and viability, but also works wonders when it comes to maintaining smooth, hassle-free customer relationships. 

Would you like to know if and where your AR process breaks down?

Our scorecard is designed to see how your practices compare to those of 1,000+ other European companies. In seven questions, you’ll cover your current DSO position, how it tracks against your own payment terms, the reliability of your cash flow forecasting, your real-time visibility into overdue receivables, your invoice dispute and error rate, and how much of your team’s capacity is absorbed by time-consuming and unnecessary manual AR work. 

Go to https://www.aptic.net/working-capital-scorecard-en/ or contact us at hello@aptic.net and take the 2-minute scorecard to find out where the room for improvement lies!