How to Optimize Your Accounts Receivable Process for Better Cash Flow?

Fri, 15 Jul 2022 11:19:00 -0400

The world economy has been grilling under the pressure of the pandemic for the past couple of years. Above that small businesses have struggled even more to survive. But now finally from the last few months business and the economy is getting back in the normal flow of things.

All businesses and companies are bringing out their best strategy and leadership plan to get the ball rolling. Just when things are starting to look a little brighter, this is no time to mess up your Accounts Receivable (AR) process. When AR suffers your bad debts increase and eventually your cash flow gets filled with roadblocks. Hundreds of companies across the globe have ended up filing for bankruptcy due to the pandemic. Do not let your business be one of them by jeopardizing your accounts system.

Ways you can optimize your Accounts Receivable and better your cash flow

Improving and stabilizing your cash flow is the only way to survive the high economic pressure of this pandemic. The first and foremost way to do this is to optimize your Accounts Receivable system. Studies believe that more than 82% of small businesses in the USA shut down due to cash flow management issues. That scary number is sure to make you rethink your regular accounting work. Here are the initial first steps that you can take to better your Accounts Receivable process and get a sustainable cash flow in order.

· Analyse and Evaluate Credit Terms

The pandemic has negatively impacted more than 47% of small businesses in some way or the other. Do not let vendors and customers drag you down even more. It is true that many people are not able to pay up on time and that has made businesses give their loyal customers more flexible credit terms. But is this setting up your business for further cash problems?

Credit terms or scheduled due dates are based on different factors like long-term clients, personal relations, payment history, etc. Though this might help you build a great rapport with the customer, it will gravely impact your cash in hand. Giving out long drawn credit options can be a major roadblock. You need to make some standardized guidelines for credit return and invoice payments to handle this. You can even employ a revenue collection partner who will automate the collection system to avoid further feud.

· Keep records of invoices

Again, long term clients and word of mouth can be a thing in your business. But if you are taking informal invoices and not rechecking through them based on trust, then that is bad health for your accounts. Not only can invoices have gross errors but you can also be scammed and with fake bills. No matter who the client, you need to keep formal records of invoices, preferably digital. In the best interest of your business you must also send invoices very promptly. Right after a service is provided, send out the invoice. Give your clients, vendors time to do their due diligence process to start rolling out the money.

When you ensure these run smoothly, you also reduce the chances of bad debt and improve the cash collection system for your company. As an added advantage an AR audit also becomes seamless when you have proper records of invoices.

· Do a detailed accounts receivable audit

Internal audits for your accounts department and is extremely important to ensure good health. This will eventually help in better budgeting and forecasting for the business. In an in-depth internal Accounts Receivable audit you will understand where your business stands. How much money it has in hand to work on your growth plans or how deep you are in bad depth. You need to get these data and analyse things like turnover, payments, collection times, credit times, etc. Not all will you know your business inside out post this audit, you will also know which areas need more focus. Knowing the pressure points in your business will help you make a scalable plan for your way forward.

· Automate your accounts receivable

More than 87% of SMB in the USA have automated their Accounts Receivable to help fasten the process. Especially when the pandemic has hampered cash flow, no one wants to spend more money doing the work manually. Manual accounts work is slow, costly and also filled with errors. Getting comprehensible data from your AR from a manual accounts system is nearly impossible. That is exactly why you need outsourced accounting services.

From automating your system to leveraging the best of technology to analyse data, the KriyaGo team does it all. We will seamlessly integrate the latest software solutions into your accounting system to help optimize your Accounts Receivable and stabilize the cash flow. Partnering with us will help you cut costs and save time from heavy office work.

· Consider and plan discounts on early payments

Figure out who your long trusted clients and vendors are, consider giving them early payment incentives and discounts. This will push them in the right direction to release payments for your company before time and improve your cash flow. This will also help you mitigate bad credit risks and insensitive clients to save money and build trust in your business.

Final Thoughts

There are innumerable factors that play a role in the success of any business. But more than60% of failed SMEs said that a stable cash flow was their biggest problem. These little tips on optimizing your AR system can be a boost for your cash flow.

But these best practices will work only if you have a great AR management process to begin with. That is something that can happen only with a team of experts. That is exactly how the KriyaGo team can help you. From the best of software to a team of experienced and expert accountants, we provide it all. We will help you effectively manage your Accounts Receivable based on your business growth plans. Get in touch to discuss further.

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