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Treasury and Payments

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Now’s the time to evaluate your accounts receivable processes

Build a long-term accounts receivable strategy by digitizing, streamlining and optimizing your processes.

Taking stock of what they’ve learned in recent years, businesses are assessing their accounts receivable operations, adopting digital practices and making other changes. If you aren’t among those organizations, now is the time to evaluate your accounts receivable strategies to find efficiencies. 


1. Making accounts receivable fully digital

Paper payments require staff to make deposits several times a week, and in some organizations weekly or twice a month. But the process may be slow and can delay deposits, ultimately reducing days sales outstanding. That’s why many organizations are transitioning customers to electronic payments, which allows payments to be deposited automatically as soon as received.

Long-term solution: There are different approaches you can take to address this issue based on your relationship with the client.

  • Existing clients: Continue to transition existing clients to electronic payments.  
  • New clients: During onboarding, you can update their payment options to electronic ones.
  • Reluctant clients: Consider offering incentives to encourage electronic payments. You can also remove manual payment methods from your invoices and leave only electronic payment details, so customers must take an extra step to use manual methods. 


2. Streamlining your collections processes

Remote work dramatically increased in recent years. Many businesses operate entirely remotely or with a hybrid work schedule. As a result, manual accounts receivable processes are more time consuming, making digitization and automation paramount.

Long-term solution: Companies can analyze their current methods and invest in streamlining them. Their review may include:  

  • Ensuring the accuracy of your customer master data
  • Offering payment methods that are easy for your customers to use
  • Electronically communicating invoices
  • Finding ways to automate customer invoicing, such as email or electronic data interchange
  • Leveraging technology to automate the cash application process
  • Monitoring your accounts receivable with key metrics to maintain liquidity
  • Revising your accounts receivable policies and processes


3. Revamping your credit and collections strategies

Organizations began receiving more late payments and delinquencies during the pandemic, and the problem has persisted. Many businesses responded by making short term credit accommodations. In the long term, however, businesses may need to focus on their credit strategy.

Long-term solution: Moving forward, organizations may want to revamp their credit strategy and collections processes. Consider renegotiating existing customers’ payment terms, providing customer incentives to pay sooner and offering customers short-term relief in exchange for prompt or partial payments.  

For new clients, you can implement a four-part credit risk assessment that examines:

  1. Internal data, including customer order history, credit terms and master data 
  2. Economic indicators, including the customer’s industry or regional impact, credit rating and Dun & Bradstreet data  
  3. External data, including industry specific data—i.e., liquidity indicators, customer segmentations and government support of the industry
  4. Other factors, including logistical disruptions, labor availability and other socio/geo/political risks

Best practice is to conduct periodic customer reviews. It is essential that these reviews incorporate key performance indicators to ensure none of these areas have drastically changed.


Optimizing accounts receivable

Amid economic uncertainty, assessing and optimizing your accounts receivable strategies and processes is critical. You can make adjustments, whether increasing technology and digitization adoption or implementing efficient and scalable processes, to improve days sales outstanding and the cash conversion cycle. 

For more information on accounts receivable solutions, contact the J.P. Morgan Corporate Treasury Consulting team or visit chase.com/cb.

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