A good business can be measured in various ways, including financial performance, customer satisfaction, employee engagement, and social responsibility.
Financial performance is crucial for any business, as it determines the profitability and sustainability of the organization. Customer satisfaction measures the success of a business in meeting the needs and expectations of its clients. Nevertheless, cash flow is a critical component of a business’s financial performance. Businesses rely on positive cash flow to pay bills, invest in growth opportunities, and meet their financial obligations. Without sufficient cash flow, a business may struggle to operate and perform well.
Accounts receivable is a critical component of a business’s cash flow, as it represents a source of future income. Efficient management of accounts receivable is essential to ensure a steady flow of cash into the business. Through managed services accounts receivable can be automated to heighten the mark of efficiency.
Practices To Improve Collections
Effective management of accounts receivable is essential for improving cash flow and reducing the Days Sales Outstanding (DSO). Here are three best practices that businesses can follow to improve their accounts receivable and reduce their DSO:
Establish clear payment terms and policies
Setting clear payment terms and policies helps to ensure that customers understand their payment obligations and deadlines. This can include providing discounts for early payment, enforcing late payment fees, and establishing clear invoicing and payment procedures. For example, a business may offer a 2% discount for payments made within 10 days of invoicing, and charge a late payment fee of 1.5% for payments received after 30 days.
Monitor and follow up
Regularly monitoring accounts receivable and following up on overdue accounts can help to identify and address payment issues before they become a problem. This can include sending payment reminders, making phone calls, and sending collection letters. For example, a business may send a payment reminder email one week before the payment deadline, make a follow-up phone call two weeks after the deadline, and send a collection letter three weeks after the deadline.
Implement automated invoicing and payment systems
Automating invoicing and payment systems through managed services can help to streamline the accounts receivable process and reduce errors and delays. This can include using electronic invoicing and payment systems, implementing automatic payment reminders, and integrating payment systems with accounting software. For example, a business may use an online payment portal that sends automatic payment reminders and allows customers to make payments using credit cards or bank transfers.
By following these best practices, businesses can improve their accounts receivable management and reduce their DSO. For example, a business that implements these best practices may see a reduction in its DSO from 60 days to 45 days, resulting in improved cash flow and financial stability.
Benefits of Using Automated Accounts Receivable
Accounts receivable is one of the most crucial aspects of any business, as it represents the inflow of cash that keeps the business running. The management of AR, however, can be a difficult endeavor, particularly for small and medium-sized firms with little resources. This is where managed services for automating accounts receivable come in. Managed services are a type of outsourcing in which a third-party provider takes responsibility for managing a specific service or process for a company. Here are six benefits of using managed services for automating accounts receivable:
- Improved cash flow management
One of the primary benefits of using managed services for automating accounts receivable is that it improves cash flow management. The automation of AR processes ensures that invoices are sent out promptly and accurately, and payments are received on time. This, in turn, helps businesses manage their cash flow better, as they can anticipate when payments will be received and plan their expenses accordingly.
- Reduced administrative burden
Managing AR processes manually can be time-consuming and labor-intensive, especially for SMBs with limited resources. By using managed services for automating accounts receivable, businesses can reduce their administrative burden and free up their staff to focus on more important tasks. The automation of AR processes also reduces the likelihood of errors and improves data accuracy, which further reduces the need for manual intervention.
- Increased efficiency
Automating AR processes with managed services can increase efficiency in several ways. First, it reduces the time it takes to complete tasks, such as sending invoices and processing payments. Second, it eliminates the need for manual data entry and other administrative tasks, which can be error-prone and time-consuming. Third, it enables businesses to track their AR processes in real time, which can help them identify bottlenecks and inefficiencies and take corrective action.
- Enhanced customer experience
The automation of AR processes with managed services can also enhance the customer experience. By sending invoices promptly and accurately, businesses can demonstrate their professionalism and reliability, which can improve customer satisfaction and retention. Moreover, automated payment reminders and online payment options can make it easier for customers to pay their bills on time, which can further improve their experience.
- Improved financial reporting
Another benefit of using managed services for automating accounts receivable is improved financial reporting. By automating AR processes, businesses can generate real-time reports on their AR status, such as outstanding balances, overdue payments, and payment trends. This can help businesses identify potential cash flow issues early and take proactive measures to address them.
- Access to expertise
Finally, using managed services for automating accounts receivable can provide businesses with access to expertise that they may not have in-house. Managed service providers specialize in managing specific services or processes and have the necessary skills and knowledge to optimize them. By leveraging the expertise of technology, businesses can improve their AR processes and gain a competitive advantage.
A business is interested in consistent results that reflect good margins. If key operational processes are disrupted because of liquidity crunches, the entire framework will fall like a pack of cards. Instead of sweating on day-to-day hassles in collections, a business entity can benefit multifold by automating critical processes that are connected to the funds that pay the bills.