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calendar    Jan 27, 2023

AR Collection Software: Benefits and How To Choose One

What is AR collection software?

Accounts receivable collection software can help you manage your entire AR process with a focus on collection. It tracks outstanding invoices, calculates invoice amounts, and helps you send timely reminders and notifications to customers to collect payments.

It can also track payments made by customers and provides useful data and analytics to help you understand your sales patterns, gain insight into customer payment habits, and make informed decisions about extending credit to new customers.

Benefits of accounts receivables collection software

Benefits of accounts receivables collection software

1. Reduced risk of write-offs

Writing off a bad debt becomes necessary sometimes when you know there is no way to collect payment. But you can prevent many write-offs with a streamlined collection strategy and software. The software will help you avoid risky clients altogether during the credit approval stage. Moreover, with software, you can also increase your efficiency while collecting invoices.

2. Reduced administrative and collection costs

As your business grows, your team needs to invest extra time to track invoices while chasing customers for payments. Moreover, if any customer fails to pay, you might also need to invest in a third-party collection agency or, in the worst case, get involved in expensive litigation. Collections software will save the cost of expanding your team and prevent any extra costs in the future to collect payment.

3. Reduced DSO

Increasing the efficiency of your collections with the help of software directly impacts DSO. Days Sales Outstanding (DSO) is a key metric that indicates your ability to get paid. It refers to the average time it takes for your customers to pay you. High DSO directly impacts your working capital to run the day-to-day operations of your business. Low DSO means you get paid on time and have a healthy cash flow to run your business without sacrificing profitability and invest in new opportunities.

4. Improved cash flow

Less DSO directly leads to increased cash flow. When you invest in collections software, you reduce system bottlenecks that impact your cash flow.

A healthy cash flow is essential for any successful business as it gives you leverage to run your operations efficiently, invest in better systems and explore new growth avenues. Low cash flow can also affect your ability to make timely payments to your vendors, thereby impacting your customer relationships over time.

5. Accurate AR collection management

The biggest problem that comes when you scale your business is the lack of proper receivables management and a streamlined collections process. Missing invoices, no follow-ups or reminders for payments, or even false follow-ups can impact your image among customers. By investing in automated collections software, you can manage every step of your collections process from the beginning stages of credit approval itself.

6. Enhanced productivity and decision-making

An automated collection process will reduce the manual workload on your team and increase their productivity. The software will provide the right information at the right team to the right team member assigned for a specific collections task. It shows you the list of unpaid invoices sorted by days outstanding. You can also make smart sales decisions to modify the credit limits of customers based on their payment history recorded and shown by the software.

Features to look for in AR Collection software

1. Automated invoicing

Most modern collections software integrates and automates the accounts receivable workflow. The first step in that workflow is your invoicing process.

Manual invoicing is the biggest culprit for delayed payments due to slow processing and the high risk of human errors. So, look out for an automated invoice processing feature that can help you digitize and automate your invoicing process.

2. Ability to offer flexible payment terms based on credit risk

You must be able to modify credit terms and offer flexible payment terms to your customers based on their credit risk (for new clients) and their payment history (for old customers). Without software, this process can be complex and cumbersome.

A good AR collection software will help you deliver a great customer experience (flexible payment terms) without jeopardizing your collections in the future. It will also support multiple online payment options like ACH, card payments from debit cards, and credit cards to make it easy for your customers to pay you.

3. Customized communication flows for collections

Automation does not need to come at the expense of personalization. Even if you are using templates, you must customize your communication according to the context. A good collections software takes this into account while allowing you to design different communication flows depending on parameters like the age of the invoice, type of customer (old/new for example), and payment history (first-time default/repeat defaulter). You can set reminders and emails based on these parameters to have more effective communication with your customers rather than using a one-size-fits-all template.

4. Smart customer segmentation to streamline collections

A collection software must have an intuitive segmentation feature. It should have smart aging reports that show you the list of due amounts from your customers. This allows you to focus your collection efforts on the most critical and at-risk invoices.

It must also enable you to segment your customers based on their payment histories and patterns. By identifying customers who always pay on time, you can come up with rewards whereas you can modify the payment terms of those who have a frequent history of late payments.

5. CRM integration

While other integrations (discussed later) are important, the CRM integration feature is critical to your collections. When anyone from your collections team connects with a customer for a payment follow-up, they can see the history of communication in the CRM.

This can give them valuable insights and help them personalize their communication with the customer instead of catching them off-guard or making them feel questioned. This would boost the quality of your customer relationships in a significant way.

6. Performance management

Look out for the features like adding team members, allocating tasks, and keeping a track of follow-ups and collections made by your team. This will help you identify bottlenecks in your system as well as recognize people who are doing well and who are falling behind. These insights will help you manage and optimize the performance of your collections and finance team in the long term.

7. Security and compliance standards with a focus on privacy and data security

This is the most critical feature in collection software. It is essential that your AR automation software is secure and protects your business against data breaches. You want to be sure that your customer’s sensitive information is secure and that the software uses the latest security features and compliance standards.

For example, SOC 2 compliance ensures that the software has internal controls that protect its customers against threats and risks such as data breaches and data leakage. You must sure that the software solution you choose is designed with privacy and data security in mind.

8. Compliance with Fair Debt Collection Practices Act

Last but not the least, you must ensure that your collection strategy and practices (automated/manual) meet the Fair Debt Collection Practices Act. This is because collections is closely regulated and there are severe fines or legal penalties if done improperly. The act offers certain protections to borrowers and also limits what a collector can do while collecting some types of debt. For example, the act says that the collector cannot contact the debtor at inconvenient hours or call on phone numbers that the debtor has specifically asked to cease calling.

So, your accounts receivable software must have the functionality to control automated communications in a way that meets the guidelines mentioned in the act.

Considerations while choosing AR collection software

Considerations while choosing AR collection software

1. User experience & user friendliness

This is the foremost consideration while introducing any new financial management software in your workflow. You need to ensure that the receivable automation software that you choose is easy to use. If your employees find the software too complicated, they won’t use it, and it won’t be effective. You want a solution that is intuitive, straightforward, and easy to use.

2. Customer experience

Next to the user experience, you must check if the software impacts the experience of your customers in any way. Ask questions like: how does the software affect the ways in which your customers interact with your business? What does it mean for their user experience? You want collection software that is designed to minimize disruptions to the customer experience and enhance how customers interact with your business.

3. Integrations

Consider how the AR collection software solution integrates with your other systems and tools.

Does it integrate with your existing ERP systems, financial apps, or accounting systems? Does it integrate with your email marketing and mailing platforms? What about your help desk and ticketing systems?

It’s important to understand how these different solutions fit into your organization, and which ones best meet your specific needs. Else, it could result in siloes and fragmented workflows and data.

4. Adaptability and implementation

Before choosing the collections software, watch out for any major overhauls needed in the system and processes of your existing operations to implement it.

This could be really time-consuming and distracting while making people dislike the software before even using it. So, instead of complicated on-premise software, choose a cloud-based receivable solution that has easy plug-and-play modules that you can implement easily and quickly.

Faster implementation would also allow you to identify critical bugs and compatibility issues with your existing system at the beginning itself.

5. Customer support

Remember that the best customer support is proactive and not reactive.

See if they offer proper onboarding to check compatibility with your existing systems. Find out if they conduct training during new feature launches and provide on-time support in the event of any faults or system breakdowns.

Check the user reviews and B2B software forums like Trustpilot, Capterra, and G2 for feedback on the quality of customer support.

6. Reporting

While choosing the collections software, ask for its real-time reporting capabilities and customizable features. This includes visibility of outgoing invoices, pending invoices, accounts receivables, aging reports, etc.

Good software can also display key metrics like DSO that are critical to measuring the performance of your collections. It can also enable you to build a customized platform and dashboards to simplify communication and gain access to the required information at the right time.

7. Cost

Last but not the least, you have to consider the investment you need to make. During budgeting, consider the direct financial cost as well as the indirect cost of time spent in implementation, training, and modifying your existing processes.

But remember that when done right, automating the collection process would help you get a high ROI on your investment and achieve long-term business growth. So, keep that in mind instead of sacrificing critical features or the quality of software to save a few hundred bucks.

Best accounts receivable collection software in 2023

1. Resolve

Resolve is an automated B2B credit credit and AR collections solution that can help you streamline your AR process while helping you extend the right payment terms to your customers.

By using Resolve, you don't even have to act like a bank and wait for your payment from customers because Resolve gives you 90% of the invoice payment upfront.

It speeds up the credit assessment process with 'quiet' credit checks that require only the business name and address. To improve your collections, Resolve also offers Payment Chasing services on all invoices to automate the time-consuming tasks of payment reminders, servicing, and chasing late payments.

2. Yaypay

Yaypay is a dedicated collections solution for B2B companies that comes with detailed financial reporting and automation of routine tasks.

It boasts predictive algorithms powered by machine learning to help you forecast cash flow based on payment behavior.

They also offer a secure portal to your customers so they can pay easily while giving a real-time update to you on paid invoices and DSO tracking.

However, they don't disclose pricing and you need to contact them for a quote.

3. Freshbooks

FreshBooks is an invoicing and accounting software for small businesses. It offers an intuitive interface and robust set of features to automate your accounts receivable process.

It offers invoicing and payment facilities making it easier for your customers to pay you. You can also keep a track of your projects, time, and proposals with Freshbooks.

To make collections easier, Freshbooks offers integration with CollBox. Through this integration, CollBox can find the right collector for you and spare you the paperwork by sending all the necessary details straight from your FreshBooks account.

4. Experian

Experian is a popular firm with a variety of credit and collection management solutions. It helps you locate debtors, prioritize collections, and generate collection reports.

Thanks to their proprietary credit score, you can also assess the credit risk before extending payment terms to your customers.

Similar to YayPay, they don't mention any plans on their website and you need to reach out to their specialist to explore options.

5. Chaser

Chaser is one of the highly-rated automated AR software with a 4.9 rating on Capterra.

As their name suggests, they make it easy for you to chase customers with a simple process. They can also escalate overdue payments to their collections services.

With Chaser, you get access to all customer communications and payments in one place. They also offer interactive debtor reports to help you gain more insight into payment behaviors and plan better in the future.

Chaser has different plans that can scale with your business. For example, its basic plan supports up to 50 invoices at €47 per month. Their Standard (up to 150 invoices) and Enterprise plan (up to 400 invoices) cost €117 and €357 per month respectively.

6. Lockstep (formerly Anytime Collect)

Lockstep, formerly known as Anytime Collect and now acquired by the Sage Group, offers ERP-integrated automated solutions for receivables and payables. They provide different products like Lockstep Inbox, Lockstep Self-service, and Lockstep API.

With their Inbox offering, you can integrate emails of your accounting team with the accounting software. You can get customized email templates, interactive dashboards, intuitive workflow, and a shared team workplace.

You can also give self-service options to customers and vendors so they can access and download key documents and invoices 24/7. It also helps them reconcile their statements easily so there is no discrepancy at the time of closing.

Summing it up

Summing it up

Choosing the right AR collection software is important — it can impact your financial health and your client’s experience. With so many providers out there, it can be difficult to determine which is the best fit for you and your business.

But, don't try to overcomplicate the process. Keep the above factors and features in mind when you are in the market for an automated collections software.

It might be difficult in the beginning to adapt to the technology. But it is a long-term investment that will help you reduce outstanding debt, minimize bad debts, improve cash flow, and make collection and payment processing simpler, faster, and more efficient.

If you want to try what it feels like to have an ‘AR team on tap' taking care of everything for you, reach out to Resolve to learn more on how to improve your accounts receivables collections.

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