Improve cash flow by taking control of your receivables

It's not enough for a business to generate sales revenue; actually turning sales into cash is a critical discipline businesses need to master or risk their health. Here's what you need to know to create an effective and efficient Receivables Management capability:

Every business depends on cash to continue operating and ultimately prosper. Whether it’s a new startup venture or a well-established business, cash serves as a proxy for business health and wellness. Run out of cash and chances are good that the business will become sick - or worse. It’s not enough for a business to be bringing in sales; actually turning sales into cash is a critical discipline often referred to as receivables management.

Turning an open receivable into cash doesn’t have to be complicated. Some businesses solve this conundrum by making all sales on a cash basis, meaning that no terms are available to customers other than immediate payment in full. There are customers that enjoy this arrangement so long as it involves a significant discount, but on the whole this approach tends to simultaneously eat into margins and severely constrain growth by restricting the pool of potential customers.

Adopting flexible payment practices, including the acceptance of credit cards, is another way to turn open receivables into cash, but there are a significant number of businesses that don’t like to pay by plastic. Offering the ability to make payments over time as work is completed (often with an up-front amount to start the project) can work well in certain industries or settings, but isn’t universally appropriate.

For a young business just getting started these ad-hoc methods might prove sufficient, but most growing businesses find themselves constrained without a reliable receivables management solution. The ability to take the next step for your business is directly tied to finding ways to quickly and profitably convert sales into cash.

Today, the proliferation of technology allows for receivables management systems that go a step further and address the entire cash flow management of the business. Automating these critical functions is more efficient than old pen-and-paper solutions or even basic spreadsheet models, and adopting a robust technology solution for these challenges is a great way to spend more time on what matters most - running and growing a sound business.

Below are five of the most readily available solutions available to small business owners today for improving receivables management.

  1. Simplified billing. Reduce the complexity and the clutter involved with having numerous stakeholders generate and send invoices to customers. Adopting an automated billing process can reduce the number of people invoicing, the hours spent generating invoices, and the costs involved in getting invoices out the door. Improving the speed of invoice generation through automation can greatly cut down on the number of days until cash comes in.

    Consider the example of monthly invoicing; by switching to an automated system invoices can go out as much as 30 days faster, meaning that net 30 terms are collected as much as a month sooner. Increasing the frequency and speed of invoicing has a parallel effect on cash coming in the door, and the hours of labor saved can easily compensate for the added expense of automated solutions.

  1. Simplified collections. It’s a fact of life that for most small businesses the collections process is an integral part of getting paid. A robust system for managing receivables can reduce this hassle by showing any amounts your business is owed and, in doing so, make it easy for you or your management to evaluate this reporting on a regular basis and prioritize collecting on the biggest amounts still due. If your business is currently running without automated receivables sorting (including aging information) then it’s time to look seriously into an automated solution.
  1. Adopt electronic payment methods. With the recent proliferation of electronic payment methods such as Automated Clearing House (ACH), Electronic Funds Transfer (EFT) and credit cards it no longer makes sense to stick to paper checks for your receivables. Given the low cost of these payment technologies and the manner in which they accelerate receipt of payment the additional security and fraud protection they offer is icing on the cake. It’s also a given that in this era of technology and digital solutions customers will increasingly expect, or even demand, electronic payment methods.
  1. Electronic deposit capability. For customers who continue to prefer dealing in pen and paper checks it’s now possible to offer remote deposit, allowing for checks to be scanned and deposited for payment 24/7. This can improve your cash flow by reducing the check float and the delays associated with processing paper checks.
  1. Payment portal. Supercharge your customer service and get paid faster by offering a payment web page or portal designed to facilitate online payments. This can greatly simplify the payment process for customers by allowing individual or ongoing payments and while allowing your business to easily assign customer payments to invoices. As an added benefit this customer payment portal also stores the history of customer payments for as many as seven years.

The Right Business Banking Partner can Make all the Difference

Small business owners today have the ability to access the industry leading receivables management solutions by connecting with the right business banking partner. The increased availability and cost effectiveness of what used to be prohibitively expensive technologies, combined with ability of business banks to provide access to electronic payment methods like Automated Clearing House (ACH), means that small businesses today can enjoy the best of receivables management without looking further than their business banking partner. Moving away from the tedium and cost of producing paper invoices and adding the capability to efficiently collect payments, all in the framework of a comprehensive online portal, empowers small business owners in ways that were previously unimagined.