How Advertise Purple Meets Day-To-Day Accounts Receivable Challenges

Accounts receivable (AR) is a crucial department in every business since many teams face a wide range of challenges in day-to-day operations that can result in late payments, bad debt or other cash flow issues. According to a Lockstep report on accounts receivable management facts, almost 40 percent of invoices are not paid on time in the U.S., and these payment delays can have massive ripple effects on payroll, customer loyalty and more.

It thus makes sense for companies to focus their efforts on ensuring accounts receivable is run correctly and efficiently. One business that has invested heavily in smooth AR processes is the Santa Monica, California-based Advertise Purple, an advertising agency that works with numerous clients, ranging from individual bloggers to Fortune 500 companies.

“I think that we’ve done a good job [in AR,] especially when you look at our bad debt ratios,” said Kyle Mitnick, founder and president of Advertise Purple. “In our industry, it’s roughly 10 [percent] to 15 percent per month, but we’re less than 1 percent.”

Achieving this was no minor feat, however, as it involved a concentrated effort to improve customer communication and limit accounts receivable billing errors. PYMNTS recently spoke with Mitnick and Jonathan Moisan, chief financial officer at Advertise Purple, about the AR struggles firms such as Advertise Purple face in their day-to-day operations and how they address them.

The Challenges Of AR

Mitnick said Advertise Purple’s greatest AR challenge is evaluating its ability to issue credit to clients, which involves determining which clients have the greatest capacity to pay on time and which ones need or deserve leeway. Another pressing challenge is the prevalence of paper checks and potential issues with postal mail, he said.

“Typically, we’re on net 30 terms, stretching up to net 90 in some instances, but given what the pandemic has done to a substantial portion of businesses, we’re constantly assessing if we’re going to allow net 90, net 60 or do we [make payment] due on receipt,” Mitnick said. “And now [that] we’re back at the office, we’ve had issues with the mailbox and paper checks and payments going missing.”

Failure to address these issues could be devastating, Moisan pointed out, as late or delayed client payments could have significant effects on downstream processes. Every payment the company makes requires cash on hand, and if AR is not up to snuff, that cash on hand could be missing entirely.

“The possibilities are endless on the negative side,” Moisan said. “[Companies are] missing payroll or not able to take a distribution for owners or getting into the cash crunch [whereby] credit cards [are] declined. There [are] all sorts of potential downsides for businesses not being diligent with their AR.”

It, therefore, is of paramount importance that accounts receivable issues are caught and addressed early before a company’s entire cash flow goes belly-up. For Advertise Purple, ensuring AR seamlessness and efficiency requires constant communication and credit checks from clients.

How Advertise Purple Addressed AR Complications

Maintaining an open channel of communication with customers is the name of the game when it comes to smooth accounts receivable processes, according to Advertise Purple. Its AR teams check in regularly with customers about their ability to pay on time and try to remain flexible when they learn of payment difficulties, especially in light of recent economic challenges.

“We do an extensive credit check, ask for references, do all of our due diligence on that,” said Moisan. “Our AR team is consistently asking for updates, but we’re obviously lenient and understand, especially during times of pandemic like the last year and a half, that challenges arise.”

Still, the world of accounts receivable is constantly evolving, with new technologies potentially creating new challenges. Cryptocurrency is a bit of an unknown for Mitnick and Moisan, as evolving regulations surrounding this technology could significantly impact customers’ ability to pay invoices accurately and on time.

“If cryptocurrency becomes the new norm, for example, what are the securities and regulations around that?” Moisan said. “Are people are going to start trying to pay with digital currencies? It’s a rapidly changing time in the digital currency space, and we don’t know what the future [will bring]. But anticipating what is coming next, doing as much research, doing our diligence and being as prepared as possible will allow us to hopefully have our best foot forward with that.”

This proactive approach fits not only complex, longer-term challenges but also imminent hurdles AR teams face as they aim to make fast and accurate payments. These departments must anticipate problems with clients as they arise and meet them where they are, lest accounts receivable complications quickly balloon into much larger problems for businesses they partner with.