Collecting Overdue Invoices in Dynamics NAV

October 30th, 2013 by

One of the most frustrating aspects of running any business is seeing revenues that generate no cash flow.  I’m not talking about margins that are too thin to generate acceptable profits.  Instead I’m talking about invoices that are not paid on time, thus choking off cash flow from what should have been profitable invoices. Collecting overdue invoices is a critical business activity if you want to maximize your success.

AR & Collections ManagerCash flow drives every business and the vast majority of businesses sell products and services based on agreed upon payment terms.  The problem arises when your customers do not pay on time.  Instead of paying in 30 days (typical), customers might pay in 60+ days or do not pay until reminded or threatened.  To be honest many customers do not really want to pay on time.  Why pay today when you can stretch out the payment for another 30 days or more?  It’s a game and the ball’s in your court until you do something about it.

Collecting overdue invoices increases cash flow substantially.

If you can get your customers to pay you sooner than they do right now, the cash flow implications are substantial.  Let’s use a very simple example.  If a $20 million firm can reduce their receivables by a single day (to say the least a very attainable objective), AR will be reduced by $55,000.

The potential cash flow though is significantly higher.  If a customer is paying you on average in 60 days and your payment terms are 30 days, a five day reduction in their payment rate will generate a cash flow of $275,000!!!

Purchasing ERP software?

If you are in the process of selecting a new ERP system, collecting overdue invoices may not be the most important project objective, but improving your cash flow management should be on your radar.  ERP systems help firms operate more effectively and efficiently and it seems a shame to increase your profitability potential without also giving you a way to actually realize the benefits of this increased profitability by getting your customers to pay you on time.

Keep in mind this business fact.  Until such time as an invoice is paid it’s as if you never did the work.  If you haven’t yet thought about receivables control (collecting overdue invoices), maybe you should.  The potential cash flow is just too high to ignore this low handing fruit.

Most ERP systems provide some form of receivables management.  Some offer functionality that is significantly better than others.  Purchasing Dynamics NAV together with the AR & Collections Manager published by Dynamics NAV Addons is worth a very close examination as this is the most effective path to controlling your receivables.

One final thought.  If your customers are not paying you on time, purchasing a product like Dynamics NAV and the AR & Collections Manager could increase your cash flow and therefore contribute significantly to paying for your new ERP system!

Selling ERP software?

If you are a Dynamics NAV reseller located just about anywhere in the world, offering prospects the ability to generate this level of cash flow will make it much easier to sell Dynamics NAV.  Lower the Total Cost of Ownership and increase your competitive advantage.  All you have to do is ask, hopefully in your first contact with a prospect.

If collecting overdue invoices isn’t an issue, you can ask other requirements probing questions and the prospect will think nothing of it.  However, if collecting overdue invoices is an issue or could be of interest, you can explain how Dynamics NAV can reduce receivables and generate this promised cash flow.  Now you have the prospect’s attention and have also created a competitive sales advantage.  Since your prospect may require some form of project ROI analysis, reducing AR is absolutely the easiest ROI to calculate and justify.

AR & Collections Manager

Simply purchasing any ERP application will not guarantee success when it comes to collecting overdue invoices.  You have to actually do the work and the AR & Collections Manager will help you manage the collections process more efficiently (reduced cost per dollar collected) and more effectively (your customers will have no wiggle room when to comes to paying invoices  sooner than they do now).

AR & Collections ManagerAt its core the AR & Collections Manager is a highly specialized contact manager that helps you

  • maintain a list of contacts that are the AP payment decision makers for each firm,
  • automatically place an overdue invoice on your action list,
  • start the collections process sooner,
  • track each conversation you have and action you take,
  • record what the customer said and when they said they would take action,
  • access the customer’s payment history and invoice details instantly,
  • view a consolidated picture of each overdue invoice as well as the customer as a whole (all overdue invoices),
  • easily set a next contact date and
  • contact the customer on that date.

These are just a few of the business processes supported by the AR & Collections Manager.  If you are interested in learning more about the AR & Collections Manager, click through here.

Change your customers’ payment behavior.

Strong-arm collections tactics do not really work.  Why?  They are contrary to effective customer service and customer satisfaction. The real key here is that firms will be able to manage their receivables by changing their customers’ long term payment behavior.  Certainly organizing the collections process more effectively will have some short term benefits, but changing a customer’s payment behavior should be the underlying objective.

Behavioral change as you already know takes time.  Initially customers will want to “play the game”, promising payment but not delivering payment.  That’s why you need a system that stores the details of each contact, what was said and what was promised.  When you call the customer back on the appointed date, it’s going to be difficult for them to make excuses since you have the entire history in front of you.

Over time customers will come to realize that they cannot make excuses and really have no choice but to pay you sooner.  Once they improve their payment behavior it will not be necessary for you to contact them quite as frequently and that’s when the efficiency of the collections process becomes significantly improved.

It is not possible in this relatively brief article to list all of the attributes of an effective and efficient collections process.  However, I would encourage you to read the article “Credit and Collections: Effective Strategies Can Generate a Substantial Cash Flow” as that discusses these business process workflow suggestions in considerably more detail.

Summary

The objective of any business is generating profits, but those profits cannot be turned into cash until customers pay for the products and services purchased.  That’s why all firms must pay attention to the collections process.  This tight economy is putting pressure on firms to preserve their cash and one of the easiest ways of doing so is delaying payment for as long as possible.

If you just rely on the traditional Aging Report to collect overdue invoices, collecting overdue invoices becomes more labor intensive (less efficient) and much less effective simply because the entire process is manual.

The AR & Collections Manager will assist users of Dynamics NAV organize the process more effectively and change their customers’ payment behavior.  The cash flow potential is significant, but only if you utilize a software based collections tool such as the AR & Collections Manager.

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