Cash flows are crucial for any business, as they are the lifeblood of the organization. Positive cash flow enables a business to pay its bills, invest in growth opportunities, and reward shareholders. On the other hand, negative cash flow can result in bankruptcy, as the business will struggle to meet its financial obligations.
Cash flows impact various aspects of the business, including decision-making, budgeting, and financial planning. They are also critical in determining a company’s valuation, as investors use cash flow metrics to evaluate a business’s ability to generate profits and repay debt. Effective accounts receivable automation software aids in cash flows and increases the value of a business.
Impact of accounts receivable on DSO
Accounts receivable or AR is the amount of money owed to a business by its customers for goods or services sold on credit. AR represents a company’s short-term credit that is yet to be collected. It is considered an asset on the company’s balance sheet, as it represents money that the company expects to receive shortly.
Days Sales Outstanding or DSO is a metric that measures the average number of days it takes for a business to collect payments for its sales. A high DSO indicates that a company takes a long time to collect its AR, which can negatively impact its cash flow and working capital. Hence, reducing DSO is essential for maintaining healthy cash flow and optimizing business operations.
Reducing DSO can also enhance a company’s reputation with its customers, as it can lead to quicker payment processing and improved customer satisfaction. Additionally, it can increase the company’s borrowing capacity by demonstrating its ability to manage its AR effectively. Therefore, managing AR and reducing DSO is crucial for maintaining healthy cash flow and financial stability for a business.
Benefits of Automated Accounts Receivable
Automated accounts receivable refers to the use of technology and software to manage and streamline the process of invoicing, tracking, and collecting payments from customers. Automated AR solutions can help businesses reduce manual errors, improve cash flow, and enhance customer experience. Here are five benefits of implementing automated AR:
Faster Invoicing and Payment Processing
Powered with AI, automated AR enables businesses to generate and send invoices quickly and accurately, reducing the time it takes to get paid. It also enables customers to make payments electronically, resulting in faster processing and reduced administrative work for businesses.
These platforms are device friendly and can be operated by small business owners without investing a lot of amount in big or fancy computers. A process that was taking long hours in manual mode, can speed up the number of invoices that are processed within a period and that too without creating other complications or hurdles.
Improved Accuracy and Reduced Errors
The risk of manual errors is eliminated and accurate record-keeping of all transactions is ensured with digital intelligence tools and transparent transactions. This can help businesses avoid billing disputes and improve their financial reporting accuracy.
Automation reduces errors by eliminating the possibility of human error. When tasks are automated, they are performed by machines or software programs that are designed to operate without mistakes.
Automation technology, such as robotic process automation, artificial intelligence, and machine learning, uses algorithms and predefined rules to carry out tasks. By relying on these technologies, businesses can reduce the likelihood of errors caused by fatigue, distraction, or human fallibility. Additionally, automation technology allows for the consistent and reliable performance of tasks, leading to greater efficiency and accuracy.
Enhanced Visibility and Reporting
Automated AR systems aid real-time visibility into a company’s AR status, enabling businesses to track payments, monitor customer behavior, and generate detailed reports. This can help businesses make informed decisions, identify areas of improvement, and optimize their AR process. A transparent system with effective real-time communication can aid in better collaboration with other team members.
Improved Cash Flow Management
Automation helps businesses identify and resolve payment delays, optimize cash flow, and reduce DSO. This can help businesses maintain healthy cash flow, reduce the need for borrowing, and enhance their financial stability.
Customers who normally delay their payments can be identified and less business can be initiated with them till they clear their past dues. When dealing with customers who don’t settle their dues, it’s important to have a clear policy in place and communicate it clearly to the customer.
With the benefits of predictive tools from AR automation, a business can try to find out the reason behind the late payment and work with the customer to come up with a plan to pay off the debt. If necessary, consider implementing late fees or taking legal action. Overall a business can try to maintain a professional and respectful demeanor to avoid damaging the business’s reputation.
Better Customer Experience
A business can improve the overall customer experience by providing easy and convenient payment options, reducing payment processing time, and ensuring accuracy in billing. This can help in building a loyal customer base, reduce churn, and enhance repeat orders which translates to reducing customer acquisition costs in the future.
A business generates economic growth through job creation and expansion activities. However, only through efficient operational capabilities, an entity can master the ability to maintain healthy margins.
Every business, irrespective of the size and scope of its operations cannot risk delay in payments as it raises liquidity crunch and affects the outflow of cash. These problems sync and form a domino effect soon enough. Before things start snowballing and are out of control, it is essential for the leadership to take the decision to automate their software and facilitate seamless operations that can elevate the growth of the business.
A business that keeps waiting for the cash that is due will be lagging behind other organizations in a competitive world. For optimum utilization of resources, it is important to keep the cycle of working capital and cash flows from operating activities positive. Automation of accounts receivable will help an entity stride over the hurdles efficiently through its robotic workflow algorithm and predictive tools.