Inefficient AR processes leave cash trapped in operations for long periods of time, stopping you from investing in growth opportunities. In this blog, we share four strategies for speeding up the cash conversion cycle.
On paper, accounts receivable (AR) is one of your largest assets. But how long does it typically take for you to have that cash in pocket?
A lengthy cash conversion cycle not only spells trouble for paying your business’ regular expenses but it also inhibits your ability to grow. Fast-growing companies need quick access to cash to fund expansion into new regions, hiring of additional staff, and research and development efforts.
A new report from the International Data Corporation (IDC) titled “It’s Time to Transform Accounts Receivable” shows how overhauling traditional AR processes with cloud-based technology leads to unlocking working capital faster, so you can invest it where it matters.
In this blog, we’ll break down four strategies IDC highlights for improving processes that would otherwise leave cash tied up in operations for extended periods of time, helping you accelerate cash conversion.
1. Understand your customer
Miscommunications and customer disputes can cost you precious time when awaiting payment on receivables. Sometimes discounts promised to customers by sales reps aren’t reflected on their invoices or goods can arrive damaged. Straightening out these kinds of issues via phone or email can mean weeks go by before customers are prepared to pay.
Collaborating with your customers more directly can clear up miscommunications before they become disputes and make it easier to get to the root cause of an issue. An AR automation solution that provides customers with an online portal enables this level of bi-directional communication. Customers can view invoices on their own time and leave comments directly on those invoices when they have a concern. That way, your team never has to search for the context of an issue and can quickly resolve problems that hold up payment.
Engaging with your customers this closely can also help you spot recurring issues in your processes that contribute to late payments, so you can make changes that’ll positively influence future payment behavior.
2. Know your process
In order to optimize your AR process, you should first know exactly what's currently involved in it. This sounds simple enough, but when finance teams operate with a high degree of manual work, having visibility into the status of all their receivables becomes difficult.
Beyond just being irksome for your team, manual AR processes hurt your cash flow. A recent report from PYMNTS.com found that businesses that rely on manual AR processes tend to have 30% longer average DSO compared to those with medium to high levels of AR automation.
Centralizing your AR operations in one location with cloud-based software gives everyone on your team an easy way to understand where each account stands and at what stage a delay might be occurring.
3. Control your cash
Unifying all your data on customer accounts and the status of receivables in one place through an AR automation platform also gives you easy access to the insights you need to accurately manage cash. When your AR platform syncs in real time with your ERP, you can be sure you’re basing decisions off the most accurate data when aiming to optimize working capital.
Many AR automation platforms offer advanced analytics capabilities, aggregating all-important metrics like DSO in one convenient dashboard. Instead of having to refer to multiple sources to pull reports that inevitably get stale the moment you export them, you can get everything distilled in one real-time view. A simpler data measurement process makes it easier for you when reporting to executive leadership, which concern over the economic downturn likely has you doing more frequently.
4. Make your customers happy
One often overlooked way to accelerate payment times is to focus on your customers’ experience. With the barrier to switching suppliers getting lower and lower in most industries, every aspect of the customer experience counts—and that includes the billing and payment processes. Research from American Express points to the fact that for 33% of American customers, it only takes one negative experience to get them to consider switching their service provider.
By giving your customers a better billing and payment experience, you motivate them to pay you faster. For instance, think about the invoice delivery and payment methods you currently support. Are these the channels that your customers want to be receiving invoices and making payments through or are they simply the most convenient options for you? If it’s the latter, you have a clear opportunity to better serve your customers.
Shifting your mindset from supplier-centric (what’s best for you) to customer-centric (what’s best for your customers) means giving customers flexible options for receiving their invoices and making payments. When customers are given the convenient experience they want, they’ll happily pay you faster, contributing to shorter cash conversion cycles.
Turning unlocked cash into growth
Improving the speed with which you collect receivables, paired with an effective working capital management strategy, allows you to take advantage of opportunities to invest in your business’ growth and innovation. By automating traditionally time-intensive and people-intensive accounts receivable tasks, you can reduce expenses by avoiding the need for additional headcount and direct your team’s efforts to projects that bring the highest value to your organization.
For more practical insights on how you can transform your AR processes to optimize cash flow and increase operational efficiency, you can download IDC’s report “It’s Time to Transform Accounts Receivable” for free here.