How to Boost and Manage Accounts Receivable for Maximizing Cash Flow
Today’s world is highly competitive, with numerous competitors vying for survival in the market. They continue to discover and implement various strategies to attain business success. However, the crucial factor that determines smooth business operations is cash flow. A healthy cash flow ensures that the business receives a healthy income path.
As the accounts receivable process is essential for every business, this blog provides clear details about it. You can gain information regarding what accounts receivable are and how they can be improved for the prosperity of the business. Let’s delve in.
What is the Accounts Receivable Process?
Consider a situation: A client is accepting an interior design service from your business. After completing the entire work, you are issuing the invoice to the client for making the credit payment. But within the mentioned deadline, the client didn’t make the payment. This invoice becomes an outstanding invoice.
In this situation, the process used to collect the payment on credit from the client is referred to as the accounts receivable process. This process has direct effects on the business's cash flow and its financial stability. With this process, the financial issues in a business can be easily identified and rectified.
Strategies to Enhance the Accounts Receivable Process:
Effective accounts receivable management not only enhances the business cash flow but also plays a major role in maintaining a strong client relationship and showcasing professionalism.
Strategy #1: Make use of the Online Invoicing process
The traditional invoicing process will go at a snail’s pace. Creating invoices and forwarding them to clients often requires more time to progress. The clients will make the payments only after they receive the invoices. So, slow forwarding of invoices won’t give a good result here. But making use of online invoicing software results in the instant creation and forwarding of invoices. The payment methods integrated with the invoicing software assist the client in making instant payments.
Strategy #2: Make Use of the Appropriate KPIs
The key performance indicators must be tracked properly to experience proper business functioning. Some of the indicators are as follows.
- Days Sales Outstanding (DSO): This is the average duration that is needed to collect the payment under a period of 30 days.
- Accounts Receivable Turnover Ratio: This ratio indicates how promptly payments are collected from clients, directly impacting the company’s cash flow.
- Modified Invoices: In business, situations may arise that require modifying the invoices again and again. If a greater number of invoices are modified over a specific period, then consider altering the invoicing policies.
Strategy #3: Track the Overdue Payments
If your business has more invoices with overdue payments, then you should track them properly. Effective communication must be made when more invoices are left overdue. Make effective communication, send invoice reminders via text message or mail, or make a phone call.
Strategy #4: Offer Easier Payment Methods
To get the payment from the client, the invoices must be customized by adding numerous payment methods. Offering numerous payment options to the clients increases the chances of getting prompt payments.
Strategy #5: Bring External Agencies In
If you think that the client relationship is incurable, then consider bringing the external agencies to collect the payments. But working with external agencies can also result in large-scale expenditures.
Implementing the accounts receivable process helps ensure smooth business operations.