1. Resource Library
  2. AR Automation
  3. AR Management

How To Finance Transformational Change by Unlocking Your Working Capital

Published on 3 min read

Automating the accounts receivable process holds great potential for increasing working capital within an organization. By unlocking those previously tied-up funds, organizations can use that money for new projects and driving company growth.

Cash flow is the lifeblood of any business. The key to increasing cash flow on a consistent basis is to collect payments faster, decrease Days Sales Outstanding (DSO) and reduce business expenses. Although an area of finance commonly overlooked – and in large part because it has been overlooked for so long – the Accounts Receivable department can achieve these goals by creating efficiencies in the invoice-to-cash process.

And the fastest and most effective way of doing that? Automate.

How AR automation increases working capital

Automating the accounts receivable process:

  • Allows B2B buyers to pay online using secure electronic payment options, thereby reducing the business expenses of processing paper transactions,
  • Optimizes the invoice delivery channel so that invoices can be accurately tracked as received and read, providing greater visibility for the collections team so they can apply their time more effectively,
  • Optimizes the invoice delivery timing so invoices are sent out right away (and the faster an invoice is sent out, the faster a payment is received),
  • Ensures communications with the customer are routine and consistent, thereby enhancing the relationship with the customer so they pay on time or early,
  • Automatically alerts customers when payments are due, past due, or overdue, makes it possible to set up workflows, so teams can see the furthest past due accounts to get in touch with them first.

AR best practices for increasing working capital

In addition to automating accounts receivable, the following best practices are proven to increase the speed of customer payments, reduce DSO and keep more accessible funds in the company.

  • Bill customers as early as possible. Generate an invoice as soon as the sale is made or as soon as the goods or services are delivered.
  • Be sure that billing policies and payment terms are clearly communicated to your customers on the invoice. Design and word your invoices so they are engaging, clear and easy to understand.
  • Consider offering early payment incentives such as a small discount to those customers who pay early. For example, offer a discount for paying within a week or 10 days when your payment terms are net 30. This discount will be easily offset by speeding up your cash flow, creating savings on loan fees and receiving similar or better discounts from creditors.
  • Identify delinquency early and take prompt action to prevent accounts from aging further. If a customer is consistently late on payments, introduce a late fine. Do not transact with customers who have a history of defaulting.
  • Reassign team members to focus on the truly delinquent customers. Automate most of the manual tasks within the AR process so that teams can redirect their time to chasing the high value, hard to reach customers. Reward staff members who are able to collect dues effectively.

Increasing working capital enables finance functions to champion transformational change so they can lead and succeed. Interested in learning more about AR automation or how Versapay can help your business? Contact us here.

Always stay up-to-date

Join the 50,000 accounts receivable professionals already getting our insights, best practices, and stories every month