Persevering and Prospering in the Time of COVID-19: Keep Accounts Receivable Turning

Jay Thompson, Managing Director Business Performance Improvement, Protiviti
Addie Nickle, Director Business Performance Improvement

One of the many reasons businesses are suffering during the COVID-19 pandemic is that their customers are challenged in managing their cashflow, resulting in reducing or delaying payments. In addition, the accounts receivable function is not an easy one to operate remotely; billing operations and collections/cash application teams may be slower than usual as employees work from home. For some industries, these circumstances may be accompanied by increased transaction volume: an abundance of good fortune that can nevertheless leave a business strapped as it tries to collect cash while also needing increased cashflow to fill orders.

In these challenging circumstances, a mix of approaches can help finance leaders prevail over the billing and collections issues they are facing during the pandemic.

A Range of Solutions Is Available

Data analytics and data visualization can identify accounts receivable risk categories and pinpoint which accounts to target as high priority. Robotic process automation solutions can be implemented to boost efficiency, though this may not address immediate needs if the solution is not immediately ready to deploy.

The more practicable solution might be to supply additional accounting resources that are set up for remote work. This can speed up transaction processing like customer confirmations, cash collections, refunds, write-offs and adjustments, and reconcile daily cash and wire transfer transactions. But simply deploying any available resource that can get online quickly may not be enough to accomplish this critical task. Circumstances may call for a highly organized and managed approach to drive throughput and quality. A trusted managed business services (MBS) partner will already have relationships with qualified local resources who are prepared to work remotely in a secure manner now, but who can also be brought in-house, once conditions permit, to address ongoing needs.

Below are two examples of how a combination of approaches by an MBS team brought rapid relief to short-term cash flow issues for some clients.

Example 1: Consolidate, Optimize, Measure

One global industrial services provider had a billing structure distributed across hundreds of field offices. Eventually, this approach led to a lack of visibility into overall invoicing and collections operations, and the business suffered delays in billing and a slew of aged accounts receivable. As a first step, the MBS team from Protiviti focused on reducing the aged AR balances, which allowed us to gain insights into some of the underlying issues that resulted in billing disputes and/or delayed payments. Then, we optimized billing operations to reduce invoice processing from more than two weeks to only five days. We developed automated reports issued from the client’s own enterprise resource planning system. These reports yielded the insights needed to devise multiple workflow improvements, as well as more sensitive metrics to support effective monitoring of invoicing processes over time.

Ultimately, this led to consolidating billing center locations into regional shared service centers. Taken together, these interventions helped accelerate collections off several  hundred million dollars in aged accounts receivable. 

Example 2: Overcome the Backlog and Redesign the Process

An international energy company had completed a large, complex acquisition that dramatically increased the company’s volume of business. An unintended consequence of this success meant they soon experienced a significant backlog of accounts receivable transactions. By working with their customers and understanding the root causes of the backlog, the MBS team developed standardized processes, performance objectives and report monitoring – while also helping the business implement a new accounts receivable and collections function. Ultimately, we assisted the company in collecting over half a billion dollars – a 90% reduction in outstanding receivables.

Collections During the COVID-19 Downturn

Performing AR collections during this difficult economic time is absolutely  necessary – but it’s a delicate business. Approaching customers who may be struggling financially about aging debt requires a special blend of firmness and tact. Below are some suggestions:

  • Stakeholders in the business must agree about how delinquent accounts are segmented. Consider the long-term value of each relationship as well as the age and amount of debt in the context of today’s challenging business environment and be prepared to carry more debt to preserve relationships if the business can support that.
  • Prioritize calls and correspondence as a first round of communication about outstanding invoices.
  • Understanding individual customers’ circumstances about their debts will help capture the majority of collection results, but it’s also the most challenging part of the work. Here, mediators can add value; they’re especially helpful if earlier collections efforts have hurt customer relationships. Mediators can engage and negotiate diplomatically on behalf of clients, which serves the goal of healing relationships while also driving down aged account balances.
  • As a last resort, identify any remaining aging accounts to be written off or assigned to an agency for collection.

Combining approaches that address the sudden need to work remotely, to make processes more efficient and to derive actionable information from new or legacy systems can result in substantial improvements to a business’ cash position, even in the challenging business environment wrought by COVID-19. Combining experienced operational resources with consultants who specialize in accounting and finance – and in receivables in particular – ensures businesses can improve their cash positions through the pandemic by making the accounts receivable function as effective as possible. The right blend of skills and expertise will help leaders respond to current challenges and deliver lasting improvements at the same time.

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