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Speed up receivables with these tips

Looking to keep your enterprise on a stable footing this year?

In today’s uncertain economic climate – rising costs, interest rates heading north and persistent talk of recession – it’s a key goal for Australian business leaders up and down the country.

There are numerous actions you can take to achieve this end, including switching suppliers, reducing overheads and outsourcing non-core aspects of your operations. 

One of the best ways to strengthen your enterprise is to ensure its cash flow is healthy and predictable. If customer payments are persistently overdue, you run the risk of not having enough cash to hand to sustain your operations and pay your suppliers and staff.

Conversely, being paid promptly can enable you to take advantage of on-time discounts and rebates, and provide you with the liquidity you need to capitalise on emerging opportunities.

Here are seven ways to optimise your accounts receivable process and boost your cash flow and liquidity.

Provide credit discerningly

Would you offer a personal loan to any random off the street? The answer, of course, is no: you’d check them out thoroughly before handing over the funds. It pays to take the same approach when a new customer asks to open an account. Examining their credit history and tailoring your terms accordingly will lessen the likelihood of your ending up with a bad debt down the track.

Establish a credit policy

Developing and documenting a credit policy will make it easier for your team to make the right decisions about extending and increasing credit. It should include details on how and when credit should be repaid and make provisions for monitoring customers’ payment patterns so new risks can be detected and mitigated before accounts fall into serious arrears.

Communicate effectively

Clear communication is key to a harmonious, well-managed receivables process. Ensuring your customers understand your expectations around credit from the outset can reduce the incidence of arrears and may speed up the payment cycle too.

Understand customer behaviour

There’s more than a little psychology involved in the AR process and for that reason, it can pay to make a study of your customers’ payment behaviours. Some debtors, for example, will blithely ignore one or even two email reminders but will remit funds promptly after a follow-up phone call. Map out these payment patterns, and your AR team can modify their behaviour accordingly, developing personalised recovery sequences that have customers coughing up the cash faster.

Invoice accurately

No one likes being wrongly charged for goods or services, and an inaccurate invoice can extend the payment cycle by days if not weeks. Having your accounts team check all the details, such as order numbers and prices, before bills go out will do much to prevent unnecessary delays.

Maintain an ageing process

Not all outstanding accounts are equal. That’s why you need an ageing process: to help you identify, organise and rank them based on the length of time by which they’re overdue. Having one in place will allow you to determine where your team should focus its collection efforts. It can also help you gain a better understanding of your organisation’s financial position.  

Follow up respectfully

Chasing up late payers is part and parcel of AR life. Companies that are slow to do so may find themselves at the bottom of the creditor pecking order or, in a worst-case scenario, whistling for their money. Monitoring your collections and, where necessary, making contact with customers politely and promptly, will up the odds of your accounts being settled on time every time.

Tools to make the task easy

The right technology can make it easier to get on top of your accounts receivable function and get cash flowing into your company coffers faster. 

Many AR teams continue to operate in analogue mode, manually monitoring their incomings and using spreadsheets to track payments and analyse data.

Implementing an AR automation solution can streamline the collections and payment processes and take the hard work and hassle out of updating accounts and pursuing overdue invoices.

Companies that make the switch can expect to reduce their manual processing by 84 per cent and improve payment collection times by an average of five days on average. They’ll also be able to cut their operating costs by 75 per cent for cash application.

If you’re serious about strengthening your financial position this year, it’s an investment that’s likely to pay for itself many times over.

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Danny Wheeler

Danny Wheeler

Danny Wheeler is Solutions Strategy and Marketing Manager – Accounts Receivable Automation at accounting automation software leader, BlackLine, where he is responsible for helping customers move to modern accounting by unifying their data and processes, automating repetitive work, and driving accountability through visibility. He has more than 15 years’ experience in project management, business analyst and architecture roles having previously worked at Apple, Dovetail (now Fiserv), Rimilia, Veolia Environmental Services and Rentokil Initial.

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