Just as any business has its slow and busy seasons, seasonality can also affect accounts receivable -- in workflow and cash flow. The best way to be ready for the highs and lows is to forecast properly and take action to help business ride out the dips and valleys. Rather than be caught unaware of possible payment lags, the best policy is to stay informed and proactive.
Here are some ways to handle slow periods in accounts receivable:
- Plan Ahead for Holidays
The number one reason for seasonality? Holidays, of course. When dealing with holiday lags, there are two departments to worry about — your own A/R department, and your clients.’ Fortunately, most American companies observe similar, standard bank holidays and can plan ahead.
Knowing customers will be rushed to finish work in the weeks leading up to the holidays allows companies to act accordingly. For example, emailing a customer with a question about an invoice the day before Thanksgiving probably won’t result in a quicker payment. On the other hand, emailing a few weeks ahead of time gives customers a chance to prioritize requests, as they work through their last-minute to-do list.
- Account for Vacations & Out of Office
Summers also account for another chunk of time when many employees are out of the office. Did you know more than half of all Americans take vacations between May and September? In countries like Europe, people take even more vacation time.
Business doesn’t stop for vacations, however. Having a plan to manage absences is critical to success. For example, keeping a current out-of-office calendar and using automatic out-of-office email responses can keep internal and external customers informed of upcoming breaks.
Following a formal approval process for vacations also ensures the entire A/R team isn’t out of the office at the same time. Consider training backup employees to cross-perform duties, who can step in and backfill a role during vacations.
The important thing is to keep all lines of communication open, so there are no missed messages or invoices falling through the cracks. Optimizing all points of contact in the payment process workflow is essential to avoid delays and interruptions.
Pro-tip: While it might seem like a good idea to have trusty A/R employees who never take time off, this could be an opportunity for fraud. As we’ve written before on this blog, making sure duties are rotated periodically is an effective way to get a second set of eyes on important financials, and to avoid someone working without oversight.
- Factor in Industry Seasonality
Aside from national holidays and vacations, different industries have their busy and slow periods (such as tax season for insurance agents). Getting to know your clients’ industry trends can provide insight into any lags in their payment process.
Another way to keep up with clients is to sign up for their newsletters, or follow them on social media. Any news of their goings on can help you manage their payments. For instance, many companies spend a lot of time on the road at trade shows and conferences. Knowing if your client has a big trade show in October can help your team understand why their November payment is slower than usual, and you can plan accordingly in September.
- 4. Analyze Payment Trends
If you’re trying to figure out why a customer is slow with payments, one way to gain insight is to look at their past payments. The longer they are a customer, the better data you will have to analyze trends. Even if their industry doesn’t follow a set “season,” there may be information to glean from past payment patterns.
Knowing there are slow periods ahead can help companies speed up collections in the time leading up to a slow period. For instance, they can move clients invoices to the top of the list and entice them to pay earlier, to avoid the potential lag.
- Outsource A/R
Perhaps the most surefire way to deal with seasonality in accounts receivable is to outsource A/R altogether to a billing firm like Interstate Billing Service, and take the guesswork out of the process.
With an outside firm handling accounts receivable, you can be free to focus on developing new accounts, not just managing them.
What does your A/R team do to handle the highs and lows? We’d love to hear your ideas!