If you are like me, the thought of the year-end process churns the stomach. Days grow longer as deadlines approach but there are few times more opportune than the beginning of the year to consider possible improvements to your accounts receivable processes and policies.
Accounts receivable is one of the most important, if not the most important, operations in a company’s cash flow. Decisions made within the accounts receivable department can be felt throughout the entire company. This year make the accounts receivable team both a cash generator and valuable voice within the company, as opposed to the department that keeps its head down and rinses and repeats the same processes for years on end.
Why not make it your mission for the New Year to ensure your accounts receivable team is not just a line on the balance sheet, but rather a valuable asset that collects faster and frees up cash?
What needs to be improved
Before deciding to turn the AR department upside down stop to consider what outcomes you want to achieve. This may seem like common sense, but we have all experienced the manager on a mission who wants to create change without a clear understanding of their effects, positive or negative. To determine what goals to focus on, gather information such as budgets, metrics and benchmark data from the previous years. You need this information so you have a starting place to gauge progress. Compare your company’s information against other similar businesses within your industry to help establish realistic goals. Where can your company improve? What are other companies doing better? For instance, if you work in retail trade and are interested in decreasing your Days Sales Outstanding (DSO), look at what other retail trade organizations are reporting as their average DSO to see if there is room for improvement.
Once you determine what needs to be improved, find out what processes will help the department reach its goals. Make sure the goal is achievable in sufficient time or else you can risk low morale and no one championing the change that needs to take place. Again, if one of your goals is to decrease DSO, you may want to consider, for example, internal controls that verify the completeness and accuracy of an invoice before it is sent out, so that you avoid confusion and speed payment.
If you want improvement to happen it has to filter from the top down. Improvement has to be bought in by all departments and employees involved. The key is to turn management goals into team goals that all involved parties recognize as valuable.
This begins with communication. The best way to give employees a stake in the change is to ask for input during the planning phase. What is working well within the department? What do you feel could be better? Workers often have valuable insight into how well or poorly the department’s processes and procedures work in practice. Communicating with your employees gives management critical insight and gives them a stake in the process. It is far easier to work hard towards goals you helped to establish than towards goals forced upon you.
Plan for success
Now that you have a list of processes to improve the company and you have received feedback from employees, you need to implement. Start by making a calendar that indicates milestones and completion dates for each of your goals. Identify who will be responsible for what. Include expected monthly progress that can be measured against actual performance. The key to an effective plan is to include continuous evaluation of your goals throughout the improvement process, so adjustments can be made when required.
Once the calendar is created, determine how the changes will be implemented. Strategies will vary depending on the unique specifics of your department, so be sure to get feedback from everyone involved to avoid potential missteps. Finally, create a document that summarizes your metrics, goals, calendar and plan for implementation to be distributed to all involved.
Explain the benefits
After the plan is in place, be sure to explain the value of each of the changes to employees. No one likes change but if they understand the benefit of change they will work towards the new goals. Additionally, consider offering incentives as a reward for meeting goals. Some incentives can be intrinsic like simply thanking employees for good work or posting model examples of employees meeting goals on a bulletin board. You might also consider offering monetary incentives when appropriate. Incentives let your employees know what is good for the company is good for them.