Accounts receivable typically isn’t classified as optimized, cutting edge, strategic or progressive department. It’s simply the department that collects money. Yet, if you walk into any business school around the world, you hear professors preaching “strive to get paid today & pay tomorrow.” As a business, you want to be cash greedy in your A/R department. Here are two reasons why you need to be CASH Greedy:
1) Cash Affects Every Department
The Accounts Receivables department doesn't get a great deal of attention in most operations. The strategic business focus lies more on sales, product innovation, cost analysis, R&D and pricing to drive growth. The A/R department typically isn’t in the conversation when considering driving better margins. Yet, the higher your Days Sales Outstanding (DSO) the higher the chances of borrowing capital to pay incoming accounts payable. Analyze your A/R to understand DSO, then why -- why payments lagging or if invoices are often incorrect. That analysis may yield the solution to getting paid quicker.
2) Less Likely to Leverage Debt
The higher your DSO and Account Receivable turnover ratio, the longer it takes getting the cash back to work. Understand what drives your DSO and your Accounts Receivable Turnover Ratio to mitigate the leverage of debt. By addressing the manual processes that plague your A/R Department you may eliminate the data keying that creates the bottlenecks that lead to a higher DSO. And, as stated, the longer receivables are not collected, the increased chance you have for leveraging debt to cover accounts payable.
Research from NACHA and IOMF indicates by 2020, 66% of all B2B payments will be made electronically. With each electronic payment comes a remittance email that will contain pertinent information to allow you to clear your ledger. Bottlenecks and inefficiencies affect companies of all sizes but especially mid-size companies and companies in the accelerated growth stage.
Be aware and be mindful that improving margins may lie right in your A/R Department. Automation of manual invoice clearing and reconciliation processes can transform the Accounts Receivable Department by eliminating manual keying of remittance data which is wasting hundreds or thousands of man-hours a year and increasing your DSO.
Read more about Account Receivable Automation read these blog posts:
- Accounts Receivable: 6 Ways to Free Up Cash and Strengthen Working Capital
- 3 Accounts Receivable Realities
- Achieve Optimal Accuracy with Accounts Receivable Automation
- Futuristic B2B Payments: Virtual Cards, ACH, and Accounts Receivable Challenges
- Accounts Receivable - Two Reasons Why You Should Be Cash Greedy
For more information about Automating Accounts Receivable click here