Automating your A/R process will reduce inefficiencies. Similarly, it will eliminate manual data entry errors and reduce transaction time. Adopting key performance indicators (KPIs) and defined capital metrics are also important. For instance, by adding standard revenue and profit tracking reports, you can easily have a clear picture for days sales outstanding (DSO), who is paying late, number of invoices passed through the system, collections rates made on bad receivables and collections made, your business gains the freedom to track your performance in real time.
Below are six means by which you may free up cash flow and strengthen working capital.
1) Integrate an automated A/R platform
Bring everything into one place. Simplifying the process to one integrated platform becomes a catalyst to clearing cash, increasing your working capital, reducing DSO, improving compliance. Seek a solution that allows you to access to important data that is currently keyed in upon receiving notification of a payment or ePayment. You need a solution that structures remittance, organizes it and allows downloads.
2) Incorporate a stringent customer credit approval program
Be clear, strict and precise on policies for issuing credit. Receive input from your sales team to create a timeline and barriers to what is accepted and not accepted. Understand the customer and what volumes they are buying. Commit to approving or rejecting credit application in a set time frame. Customers and industries change so revisit and revise your credit approves SOP’s on a quarterly basis.
3) Understand what drives your DSO
Understand your industry DSO to measure your performance. To clearly understand how many past-due invoices you have on average and if is that’s trending up or down. Identify common areas on past due invoices to understand how you can collect payment sooner. Here are a few questions to start with:
How many invoices are past due?
Were there unapproved discounts?
How often are the sales teams overriding standard terms?
If they are frequently doing so, should you adopt different policies?
4) Be a MASTER of your customer data
Once you assign credit limits, payment terms, discounts, tax rates and other relevant terms, continually update and review for current accuracy. Inaccurate customer data leads to outstanding payments. Train, advise and collaborate to assign one centralized place to maintain master data.
5) Be a Billing/ Invoice MASTER
Companies struggle in this area for consistency. Customers vary from check payment to online payment and sometimes invoices are inconsistent. Getting paid is a consistent process that you hope to move to one of accuracy and timeliness. Below I have outlined some areas that will help streamline your collection and cash availability:
Automation: Reduces human error and provides consistency
Timely and Effective Invoicing: Being consistent with your customers builds trust.
Electronic Bill Pay: Suggest that customers pay you electronically -- once you have automation in place. ePayment instantaneously drives down your DSO if you have an automated system.
6) Collect the Cash
Strengthen your cash collection training and company policy. Often companies neglect this process and A/R team members are working with inaccurate information. To strengthen this process applying these techniques to increase your cash position.
Automate the process, eliminating manual entry errors
Be diligent in the collection processes
Negotiate correct payment plans
Revisit this process quarterly
Learn more about Accounts Receivable improvements by reading or watching these related articles --
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Listed by CFO Tech as one of the Top 10 Accounts Payable Solution Providers 2018 and 2019 and by CIO Review as part of the 20 Most Promising Corporate Finance Tech companies for 2017, OnPay Solutions streamlines processes for accounts payable by automating invoice processing and payments.