The receivables process has had a major impact on customer satisfaction and sales. While the sales and customer service departments have built a legacy of managing customer relationships, I believe that improving AR processes and performance can lead to an increase in sales.
If we consider that accounts receivable is a point of entry the customer has with our business, every action we take impacts the relationship with that customer. Payment Application, a fairly rudimentary set of AR processes, is often viewed as a transactional function having little bearing on customer relations. While the primary procedures are transactional, the entire payment application process extends through the credit to cash cycle, even impacting order management and, yes, sales.
Payment Application, in its most basic form, is matching customer remittance to the catalog of invoices contained in the financial systems. When this process breaks down, payments are misapplied or fall into either unidentified payments or unapplied payments. Misapplication could mean that payments were posted to the incorrect invoices based on the customer remittance or, worse, applied to the incorrect account. Unapplied and unidentified payments require time to research and potentially leaves already paid invoices open.
The three cases cited above impact the customer negatively. First, all three scenarios leaves the customer invoice still open on their account. This results in duplicate invoices sent to the customer requesting payment on items already paid. Not only is this an additional cost for the business, it is also angers the customer as they've already made the payment. Second, receivable collectors may call the customer and request payment for the same invoices, creating an additional cost and potentially upsetting the customer. Third, all three indicate to the customer that your internal processes are broken, creating frustration at dealing with the organization. That frustration eventually leads to anger and the risk of losing the customer entirely.
There are many reasons why payments fail to apply properly and the processes aren't as basic as one might think. It requires good communication between all the operational and finance departments, including sales, customer service and finance. Standardized processes for implementing new accounts or setting up new vendors can help reduce risk of error. Engaging with partners that are experienced in the area of AR can also help identify potential process deficiencies and increase the accuracy and timeliness of application.
Payment Application is just another area in the Order to Cash process that impacts how the customer perceives the organization. Improving this and other areas within O2C will not only help stabilize cash flow, but also increase the likelihood that good customers will remain loyal, continuing and hopefully increasing their purchasing patterns.