Successful businesses generate positive cash flows from core operating activities. It is a business practice to offer credit to long-standing customers as a loyalty bonus. However, if the aging analysis of the debtors increases, the real cash flows are impacted, and working capital reduces significantly. Even a prudent businessman who sets aside reserves and provisions for operational efficiency will find it difficult to dig deep in case of a series of delayed payments. To overcome this problem, it is wise to automate account receivable process of your business.
What is the accounts receivable function?
The accounts receivable function’s primary goal is to monitor the debtors who need to clear their dues to the company as per the aging report. The AR department tracks the collection of the money due from the billed invoices and sends reminders through emails, text messages, and calls to make the payment within a short period.
The accounts receivable team is sometimes called the collections team in a few organizations. This team generates invoices, issues refunds, and reconciles the accounts receivable ledger. Depending on debtors who pay within time, the extension of the credit timeline and amount can be determined by the company after considering other factors that influence the credibility to pay. The accounts receivable team is pivotal as they help in recovering dues and releasing the liquidity that is required for operational expenses.
Benefits of automating accounts receivable
When the accounts receivable of a business lag behind there will be a series of negative impacts starting with poor cash flows, the need to take up an additional loan to meet operational requirements, and sometimes results in even stalling the operation due to lack of funds.
It affects the overall strategic planning, and forecasting and takes a lot more effort to bounce back. Hence, accounts receivable must be settled promptly. However, a huge investment in the collections process by hiring an efficient team and equipping them with the right digital tools is an expensive affair and most businesses cannot afford it.
By partnering with an accounts receivable provider you can automate the process. These companies are professionals in accounts receivable function and they are fully equipped with the digital tools required for a seamless process workflow. With add-on benefits of new capabilities that improve the efficiency of your accounts receivable process, this partnership is a much-needed investment with the following benefits:
1. Bring down DSO
Aging reports also known as daily sales outstanding or DSO reports measure the average number of days taken by a company to recover its due from the sundry debtors. A longer DSO is not good for the business. By partnering with an AR service provider, you can relax as they will professionally manage the collections from the debtors and bring the DSO to a healthy and manageable figure. A lower DSO will result in more cash in the business for regular operations. Everything works like a well-oiled machine when the cash flows from operating activities are positive period-on-period.
2. Automated efficiency
Automation of accounts receivable reflects fewer manual hours even when the business scales its growth. The repetitive tasks in the process like diarising the reminder call schedules to debtors and sending periodical messages can be automated. The time can be applied to building long-standing relationships with customers and gaming valuable insights that can help improvise the businesses holistically.
3. Save money
Overhead expenses of maintaining a functional team for accounts receivable are far more than outsourcing the same to a professional service provider who is experienced and credible with domain expertise. The cost of hiring and training manpower, and waiting for them to onboard to perform is time both consuming and expensive when compared to partnering with an accounts receivable entity. Overburdening the business with additional staffing expenses in times of uncertainty, when the globe is yet recovering from the pandemic-induced operational setbacks is not a pragmatic approach.
4. Better decision-making
When a company has better visibility about the cash flows in the near term, strategic decisions can be taken that are necessary for the day-to-day affairs of a business. Depending on the real-time metrics, corrective measures can be taken to ensure that the deadlines are met and the DSO measures are positive. A healthy cash flow is the first sign of successful operations management.
5. Integrate invoicing
When accounts receivable is integrated with invoicing, there will be fewer discrepancies between the two registers. By outsourcing accounts receivable a business can automate the function with the latest digital receivable tools that enable the integration and centralization of the accounts receivable function.
With fewer discrepancies between the invoices raised and the accounts receivable statement, there will be less time required for reconciliation. In this manner, there is a breakdown of silos between two of the important functions of the accounting system which will translate to other business areas.
It will also help in locating any discrepancies arising in sales function whereby to boost the numbers customers are promised unserviceable favors. Overall transparency in financial reporting will improve and leave a good impression on the external auditors and regulatory authorities. This translated to improvement in the credibility of the business.
6. Reduced errors
When the process of accounts receivable is automated human errors are reduced. This leaves enough time to be spent on other crucial functions like brand promotions and product innovations for the company. Fewer errors also reduce the timeline of workflow management and improve overall efficiency.
Conclusion:
Partnering with an outsourcing firm that uses AI-enabled tools that improve the efficiency of your company’s accounts receivable function will be a decision that will show results within a few weeks.
The professional approach these partners use is safe for retaining the brand’s goodwill in the market as they use methods that are within legal boundaries. In this manner, without increasing any additional risks, outsourcing accounts receivable can help your business maintain a decent cash-flow structure, integrate the functions, remove discrepancies, and offer a transparent financial record for auditors, investors, and regulators alike.
