How to strengthen your accounts receivable management process

Cash flow is critical no matter what stage of business you are in, but especially in a tough economic environment. Whether your business is using disjointed manual systems or only select parts of the invoicing process have been digitised, automating the end-to-end accounts receivable process provides strategic, financial and operational benefits. This article outlines how businesses can strengthen their accounts receivable management processes to get paid on time and boost cash flow.

Why effectively managing your receivables is so important

Accounts receivable is the lifeblood of a business’s cash flow. While revenue may be growing, and there’s a strong sales pipeline, these factors don’t matter if customers aren’t paying their invoices on time. In Australia, for example, 30-day payment terms are standard across many industries. But when an invoice is paid late, companies often wait 50 to 55 days to get paid, resulting in a slow credit-to-cash conversion cycle. To speed up this cycle, businesses should identify and address weaknesses in their accounts receivable management process.

Get on top of your credit policies

Having a prudent approach to credit management ensures companies don’t have too many high-risk accounts with growing balances. This is currently a top priority for credit managers as strengthening credit policies helps companies prepare for economic uncertainty. In fact, 65 per cent of Australian credit managers said they were tightening collections in 2022, compared to 53 per cent in 2021. Other things credit managers should do to strengthen their credit policies include monitoring high-risk accounts, reviewing risk across the entire customer base, and completing more regular account reviews.

Automate your accounts receivable processes

Digital accounts receivable software improves cash flow management by automating invoice processing, claims and disputes, online payment acceptance, and real-time cash flow forecasting. An accounts receivable solution that shows your customers a secure view of your ledger means there is only ever one source of digital truth and the age-old “I never got your invoice” excuse for late payment becomes a thing of the past.

Embedded pay-by-link features, whereby a supplier sends a unique payment link to the customer, can further streamline invoicing and payment flows. This makes it easier to securely share invoices with customers, while making it more convenient for them to view and pay, which can result in faster payments.

Take the digitasation process one step further by choosing a solution that provides a fully integrated accounts receivable solution with ledger-to-ledger integration means additional business efficiencies and automates reconciliation into the financials of both the buyer and the seller. As a result, businesses can unlock the capital that would otherwise be tied up in outstanding invoices. For example, a business turning over $500 million annually, can free up $1.5 million per year for every day they are able to reduce their average payment cycle.

Offer more payment options

Offering multiple payment options to customers not only makes for a convenient payment experience but also increases the likelihood that an invoice will be paid on time. At a minimum, customers should be able to pay by electronic funds transfer (EFT) and credit or debit card. By allowing customers to use a credit card to fund their payments, they can effectively extend their payment terms by a further 55 days (depending on the credit card provider). This feature is attractive to customers, but the key competitive advantage that can set a business apart, comes when an integrated payment solution allows the business to offer on-demand lending, which can help suppliers and customers to better align their cash flows.

Deliver access to on-demand lending

Today, 66 per cent of SMEs want faster access to credit — something banks have limitations in offering due to their legacy credit assessment and operating models. By finding the right integrated payments and finance solution provider, businesses can not only improve their end-to-end invoicing and payment processes in one connected platform, and get paid faster, but improve their overall cash flow management.

Common on-demand lending solutions include:

• Buyer finance: Allows for upfront payment of orders while the customer enjoys payment flexibility and credit exposure is reduced.
• Supplier finance: A facility that allows a business to pay their suppliers early, reducing delivery times, production schedules and credit limit issues.
• Invoice finance: A facility that allows suppliers to unlock cash from unpaid invoices, without additional security.

Turn your receivables into cash faster with Spenda

Removing friction from your invoicing and payment processes is critical for unlocking capital and boosting cash flow. Taking the steps above will not only help your business optimise its accounts receivable processes, but it will provide consistent invoicing and payments data, which can be used to strengthen commercial decision-making too. Spenda’s accounts receivable solution takes the guesswork out of when and how you’ll get paid, so you can gain more control over your cash flow and unlock faster growth.

Whether you’re looking to get paid faster, streamline your invoicing processes, or scale your payment capabilities, Spenda can help. Book a demo and see how our solution can help improve your invoicing workflows and stop late payments in their tracks.