A Guide to Maximising Cashflow

In finance and business operations, one term often floats to the surface as both a vital asset and a potential challenge: cash flow. Proper accounts receivable management has a significant impact on your business’s revenue and healthy cash flow. When done efficiently, you will receive timely payments, maintain happy client relationships, and have high liquidity for your business. Poor management, however, can lead to wasted time, accounting errors, lost revenue, and poor cash flow.

Understanding accounts receivable

Accounts receivable represents the money owed to your business by its customers for goods or services rendered on credit. In simpler terms, it is the outstanding payments that your company expects to receive from its clients within a specified period. When your business extends credit to customers, it essentially offers them the flexibility to pay at a later date, typically within 30, 60, or 90 days, depending on the agreed-upon terms.

Why accounts receivable matters

Efficient management of accounts receivable plays a role in your company’s financial health and operational efficiency.

Cashflow management

Timely collection of accounts receivable is vital for maintaining a healthy cashflow, which is the lifeblood of any business. Delays in receiving payments can hinder your company’s ability to meet its own financial obligations, such as paying suppliers, employees, and other expenses.

Working capital optimisation

Accounts receivable is part of your company’s working capital. These are the funds your company uses to cover its day-to-day operational expenses, such as payroll, rent, utilities, and inventory purchases. When your company extends credit to customers, it ties up part of its working capital in accounts receivable until those payments are collected. On the other hand, if your company doesn’t extend credit, it might miss out on sales opportunities. Thus, there’s a delicate balance to strike. By optimising accounts receivable management, businesses can unlock trapped cash, streamline resource allocation, and enhance working capital efficiency.

Relationship building

How your company manages its accounts receivable can significantly impact its relationships with customers. Clear invoicing, transparent payment terms, and prompt follow-up on overdue payments help businesses establish trust with clients and cultivate lasting relationships.

Insight into performance

Monitoring accounts receivable provides valuable insights into your company’s sales performance, customer behaviour, and creditworthiness. By analysing receivables trends, businesses can identify potential issues early on, such as slow-paying clients or declining sales trends. With these insights, businesses can implement targeted strategies to mitigate risks and safeguard their financial health.

Best practices for managing Accounts Receivable

Dealing with payments can be complicated due to the large number of debtors who have different payment habits and financial capacities. Streamlining the accounts receivable process can help you collect debts more efficiently and strengthen your defences against financial risks.

Use automation to manage your collections

Adopt advanced financial management software like accounts receivable automation to upgrade how you handle your cash flow. Automation streamlines your order-to-cash cycle, a critical component for financial health. Automate invoice reminders, provide multiple payment options, reduce the time it takes to generate and send invoices and lower the rate of late payments. Imagine not having to manually chase invoices, instead, you can redirect your focus to strategic operations knowing that your financial processes are running smoothly with effective cash flow.

Offer incentives for early payment

Encourage prompt payment by offering discounts or other incentives to customers who settle their invoices ahead of schedule. These incentives not only serve as a means to accelerate the collection of receivables but also strengthen customer relationships.

Monitor and analyse receivables

Regularly monitor aging reports to track the status of accounts receivable and identify overdue payments. Doing so allows your business to prioritise who to chase for payment first.

Apply strict credit checks

Enforce stringent credit checks as a pre-emptive measure before extending credit. Credit evaluations and ongoing monitoring allow you to make more informed decisions, minimising the potential for financial losses due to customer defaults. Beyond the traditional trade references, look at credit scores and detailed reports to get clear, unbiased data about your potential customers. This facilitates the seamless onboarding of clients and ensures continuous evaluation of existing customers, safeguarding your financial stability in the process.

Establish clear payment policies

Define credit terms and conditions upfront, including payment deadlines, late fees, and credit limits. A clearly communicated payment policy will help clients make payments on time and avoid misunderstandings and disputes later. Your policies should match what is typical in similar businesses in your industry and fit your clients’ usual payment timings. Allowing direct debit can help make payments more reliable. It automatically takes care of payments when they are due and provides options for flexible payments to help clients who are struggling financially. This will lead to fewer unpaid bills.

Scale your business without the headache

With an all-in-one accounts receivable platform like ezyCollect, you can recover cash faster without the hassle. ezyCollect improves productivity and customer relationships with tools designed to streamline the entire order-to-cash cycle. Safeguard your business from cashflow interruptions as you scale your operations. Reach out to us if you are interested in making your debt collection more efficient, establishing trust with clients, unlocking trapped cash and taking advantage of sales opportunities.

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Managing cash flow should be a top priority for any thriving business. Cashflow relies on getting paid on time and in full. Spending valuable time chasing overdue payments, fretting over client reliability, and posting and reconciling payments hinders potential growth.

Watch our webinar recording to discover how integrating innovative accounts receivable solutions can relieve your cash flow headache.

Kilimanjaro Consulting are the experts at integrating third-party solutions like ezyCollect into your MYOB ERP to improve efficiency. To start a conversation about how to use ezyCollect to optimise cashflow and accounts receivable across your organisation, email sales@kilimanjaro-consulting.com, call 1300 857 464 (AU) or 0800 436 774 (NZ).