Tips for Comparing Accounts Receivable Performance to the Competition

Introduction

Accounts Receivable Performance (AR) is a crucial component of every business, representing services or goods that a company has already provided to a customer but has not yet been paid for. AR performance helps a business to understand how quickly customers are paying debts, which in turn impacts a business’s cash flow needs.

It is important to compare AR performance to the competition in order to decide which strategies are effective and identify areas where improvement is necessary. In this blog post, we will look at several tips to help you compare your business’s AR performance to the competition.

Understand the Competition

If you want to measure the success of your accounts receivable and measure it to the success of the competition, there are a few steps and resources you can use to make your evaluation more comprehensive.

Research the Market and Market Share

The first step to understanding the competition, is to do your own research on the market. Analyzing the current market share of your business compared to your competitors will give you a good indication of who’s doing well and who’s not. When researching the market, consider factors such as who the key players are, what their product offerings are and what their customer base looks like. Make sure to stay up to date with developments as well, as this will allow you to identify any trends or new products that may be influencing the market.

Utilize Benchmarking Resources

Benchmarking resources are a great way to compare and evaluate your accounts receivable performance against other companies in the industry. Most benchmarking resources provide information on key performance indicators, allowing you to see where your performance stands relative to the competition. Benchmarking resources can also provide insights on industry trends and best practices, which can be helpful in identifying areas for improvement.

Analyze Their Financial Statements

Financial statements for the competition can also be a valuable resource when comparing accounts receivable performance. Looking at the financial statements of your competitors can help you get a sense for their revenue and expenses, as well as their overall financial health. Be sure to pay attention to any changes from year to year, as this could provide insight into how their accounts receivable strategy may be changing.

Analyze Your Accounts Receivable Performance

Once you have a better understanding of the competition's accounts receivable performance and the benchmarks for your industry, you can use this information to analyze your company's performance and make improvements. Here are a few tips to help you do just that:

Review Collection Terms and Departments Associated

Take a look at what type of collection terms and departments your business currently has in place. See if you could benefit from additional collection terms or processes, such as automating and tracking invoice payments online or sending out reminder emails. Additionally, consider whether you need to assign different tasks or roles to different departments or employees. This could improve communication and efficiency.

Examine Aging Reports

Make sure to review your aging reports and payment data often. This includes understanding how long customers have been paying, the time it takes for them to pay invoices, and when you need to take action if invoices become delinquent. Additionally, use the data from your aging reports to spot patterns that can help you better anticipate and manage accounts receivable, such as regular customer payment delays and issues.

Compare Invoice Payments

Comparing invoice payments between your customers can reveal helpful insights as well, such as allowing you to pinpoint which customers are paying on time versus those who are delaying payments. With this information in hand, you can establish processes to encourage customers to meet their payment obligations and establish more accurate forecasts.

Analyze Collections Strategies and Procedures

Finally, review your current collection strategies and procedures to ensure that they are helping your business reach its accounts receivable goals. Consider implementing stricter terms for delinquent customers, automating payment reminders, or investing in new software or technology solutions that can help streamline and simplify the collections process.

Compare Accounts Receivable Performance

Accounts receivable performance can be complex, making it difficult to compare it to that of other organizations, especially if they may have different policies and procedures. However, recognizing these differences and understanding opportunities for improvement can help you to make the right strategies and goals to better your own performance.

Recognize Differences in Policies and Procedures

When comparing accounts receivable performance to that of other organizations, it's important to first understand the differences in policies and procedures. For instance, some organizations may have different payment terms than others, have different invoicing systems, or implement different collection techniques. By recognizing these differences, you'll have a better sense of how the performance can be compared.

Spot Opportunities for Improvement

Once you have an understanding of the differences in policies and procedures between your organization and others, you'll then be able to spot opportunities for improvement. For example, you could look at how other organizations are managing collections, invoicing, and payment terms and see if there are any modifications or processes that you could implement in your own organization. You can also compare how long it takes other organizations to collect payment, both from customers and from vendors, in order to improve your own performance.

Create New Strategies and Goals

Once you've identified opportunities for improvement, the next step is to create new strategies and goals for your accounts receivable performance. This could include implementing more efficient invoicing processes, changing payment terms, or creating incentives for customers to pay early. Additionally, you can also set goals for reducing collection times, reducing bad debt, and improving customer relations. By having clear goals and strategies in place, you'll be able to better optimize accounts receivable performance.

Analyze the Impact of Financial Technology

As the world of the financial technology (fintech) grows, businesses of all sizes have access to an ever-growing arsenal of accounts receivable tools. To keep up with the competition and remain competitive, organizations must analyze the impact of financial technology on their accounts receivable performance.

Automating Accounts Receivable Processes

Accounts receivable automation offers businesses the opportunity to streamline the process of collecting on accounts receivable and reduce the amount of manual labor involved in the process. Automation software can be used to automate invoice processing, invoicing, accounts receivable reporting and analysis, and reconciliation—saving time and money. Additionally, automated software can also be used to track and monitor payments and aging balances.

Utilizing Automated Payment Systems

Automated payment systems like ACH can help reduce costs associated with managing accounts receivable by allowing businesses to process payments faster and more securely. Additionally, these automated systems can be customized to meet the organization’s specific needs, such as automated payment reminders, rules and regulations, transaction fees, and payment method preferences. This eliminates the need for manual tracking and reduces errors associated with manual data entry.

Capitalizing on Emerging Trends

The emergence of mobile payment apps, cloud-based accounting services, and other digital payment platforms have changed the landscape of accounts receivable. Businesses should take this opportunity to capitalize on emerging trends to stay ahead of the competition and improve their accounts receivable performance. Mobile and cloud-based payment apps can be used to automate invoice processing, invoicing and reminders, and provide transparency and convenience to customers. Additionally, payment methods such as cryptocurrency can be a great way to move away from traditional payment systems and provide a secure and cost-effective way to process payments.

• Automate accounts receivable processes to streamline the process and reduce manual labor.
• Utilize automated payment systems, such as ACH to reduce costs and increase security.
• Capitalize on emerging trends in fintech, such as mobile payment apps and cloud-based accounting services, to stay ahead of the competition.

Address Shortcomings

Accounts receivable performance is a key indicator of financial health. As a business you’ll want to compare your performance to the competition and use that data to better understand your strengths and weaknesses. To do this properly there are a few steps you should take.

Use Gaps to Drive Improvement

Start by identifying any gaps between your accounts receivable performance and that of the competition. Analyze where the differences lie and look for any areas you can improve upon. For example, does your competition have a higher collection rate or are they better at resolving customer disputes quickly? These are all key areas to focus on improving.

Improve Your Strategies and Goals

Once you have identified any areas where your performance can be improved, create strategies and goals to work towards. Make sure you have specific goals and quantify any improvements that you want to make. Create a timeline for working towards these goals and hold yourself and your team accountable for reaching them.

Analyze the Results of New Improvements

Finally, measure and analyze the results of your new improvements to determine if they are having a positive effect. Regularly track metrics such as collection rate, dispute resolution time, and the number of accounts in collections and compare those to your competitors’ numbers. Any improvements you can make will help you to stay one step ahead and improve overall financial health.

Conclusion

Comparing accounts receivable performance to the competition is an essential activity for financial success. By benchmarking internal performance against the competition, an organization can optimize its approach for collecting receivables, stay ahead of the competition and maximize profits.

The major benefits that come from comparing accounts receivable performance to the competition include:

• An understanding of the current market situation
• Identifying areas of improvement
• Gaining insights into customer needs
• Enhancing customer service
• Building a more efficient payment system

To maximize accounts receivable success, it is essential to continuously revisit and compare performance, staying abreast of market trends and industry best practices. By observing competitors and benchmarking accounts receivable performance, organizations can continue to optimize performance and remain competitive in their space.