The digital spreadsheet has been a key player in business starting from from VisiCalc in 1979 to modern day Excel and Google Sheets. Originating as a humble ledger, it has morphed into a versatile tool in nearly every business back-office function, especially in managing accounts receivable (AR).

Almost every AR team we've interacted with utilizes spreadsheets in some capacity for managing their collection processes and maintaining customer communication. This trend became apparent to us quite early in our engagement with finance teams across various industries. It brought up a simple question: Why do many businesses, even with advanced accounting software that hosts all their invoice data, revert back to spreadsheets for these tasks?

Common use cases for using Excel

Here's a look at a standard spreadsheet commonly used by collections teams below.

As you might have guessed, you can easily find that information in your accounting software within a few clicks. Finance and collection teams often resort to spreadsheets to layer additional information and track certain aspects of the AR process:

• Tracking invoice follow-up statuses

• Documenting customer communication, replies, context, and next steps

• Centralizing data from various systems

• Tracking payments

• Creating AR reports

By linking invoice data with customer communication details, these spreadsheets essentially become a specialized 'CRM for invoices,' tailored to the unique needs of the collections process.

Where do spreadsheets fall short?

While setting up a basic CRM in Excel for a handful of invoices can be straightforward and effective, this approach often falls short for larger companies with more intricate collection workflows. In these scenarios, such DIY CRMs quickly become outdated, necessitate increased manpower for management, and can slow down the cash conversion cycle. Despite its initial convenience, Excel's limitations can lead to inefficiencies and missed opportunities in optimizing cash flow, especially in more complex business environments.

Shortcoming 1: Tracking invoice follow-ups

While spreadsheets can track due dates and overdue periods, they lack the functionality to prompt timely follow-ups, leading to delayed collections and an increase in Days Sales Outstanding (DSO). Furthermore, effective customer follow-up depends on prompt action and team coordination, but spreadsheets lack alerts for specific actions based on past interactions. This limitation can result in missed opportunities for efficient collection.

Shortcoming 2: Documenting customer communication, replies, and context

Spreadsheets are not inherently designed for documenting invoice follow-ups and replies. Typically, communication with customers occurs through external channels like email, WhatsApp, SMS, or phone calls. These interactions then need to be manually recorded and summarized in the spreadsheet to keep the CRM up-to-date. Information such as payment promises, contract negotiations, and invoice disputes are critical to document especially when planning to remind customers about their invoices. Collection teams will have to fit all that info in one cell for each customer, leading to lost context and confusing sheets.

Shortcoming 3: Centralizing data from various systems

Many companies involve their sales teams in the collection process, leveraging the detailed customer data stored in their dedicated CRMs, including contract details and payment terms – information that's invaluable to finance and AR teams. To consolidate invoice and customer data, collection teams often resort to using a spreadsheet, but this presents a significant challenge: manually transferring data from the sales CRM to the spreadsheet, a task that typically involves a time-consuming and error-prone process of copying and pasting.

Shortcoming 4: Tracking payments

To keep their spreadsheets current with the latest invoice statuses, collection teams must regularly check their accounting software for new payments and then manually update these in the spreadsheet. However, this process poses another challenge: if a payment is overlooked and a customer is mistakenly sent a reminder, it can lead to an uncomfortable and potentially damaging situation.

Shortcoming 5: Synchronization and orchestration

Accounting software is typically the source of truth for invoice data, but the lack of synchronization with Excel leads to human errors, which can disrupt the collection cycle and generate outdated AR analytics. Neglecting to send a payment reminder for a new unpaid invoice, demanding incorrect sums, forgetting to send payment confirmation, or even sending reminders for disputed invoices can disrupt the entire billing cycle.

When is the time to upgrade?

From our experience, companies often outgrow the use of spreadsheets for managing their AR when they exceed an annual revenue of 4 million SAR or begin issuing more than 30 invoices per month. At this stage, the complexity and volume of transactions demand a more robust system.

Feel free to reach out to us to learn more about how we can upgrade your collection process and maintain a healthy DSO as you scale, and stay tuned for our upcoming blog to learn how to upgrade your AR management procedures.