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Managing Receivables for Maximum Cash Flow


At its core, a business relies on a steady flow of cash. At any stage of a business, cash is the crucial lifeblood that feeds its vital organs to ensure its survival through economic storms and changing market dynamics. Although a business may be very adept at generating sales revenue, if it struggles to convert its receivables into cash-on-hand, it can still suffer from cardiac arrest. Next to generating revenue, the most important function a business needs to master is receivables management.

Outgrowing Traditional Forms of Payment

Of course, there are a number of basic business practices that can help speed the conversion of receivables to cash. The most direct route to cash-on-hand is to operate on a cash-only basis, accepting only cash or restricting payment terms; however, that also restricts a business’ capacity to grow. Business customers may be receptive to cash terms in return for price discounts; however, it can ultimately put a crimp in your margins.

Accepting credit cards can also lead to quicker conversion but may not be the most suitable or preferred payment method for some business customers. Establishing payment milestones, requiring an upfront cash payment or retainer with proportionate payments made in stages through service or product completion may be a good option for some business models, but it may not be practical for others.

21st Century Receivables Management

These are all sound business practices for businesses trying to establish a foothold; however, as your business grows, and the pressure mounts to take your operations to the next level, nothing short of an effective receivables management process can ensure the steady flow of cash. Fortunately, the digital age has spawned a number of receivables management solutions that can enable any business to significantly compress the receivables-to-cash cycle while improving overall efficiency of the cash management function. The tools available to businesses today can streamline the process and reduce the cost and errors associated with paper-based receivables to free management to focus on growing the business.

Here are five of the most widely available and affordable solutions small businesses can employ to accelerate their receivables:

Automated Billing

A review of your billing procedures should reveal the number of steps and people involved in getting an invoice out the door. Manual processes can involve multiple people and unnecessary steps that can extend the time it takes to get in the customers hands by several days. Automated billing can cut the time and expense of billing to a fraction.

In addition, consider the timing of your billing. If your process limits you to sending out invoices all at once at the end of the month, you could be waiting up to 60 days for payments (with net 30 payment terms). An automated system will enable you to bill your customers instantly or at more frequent intervals. The increase in cash flow and the reduction in staff requirements will more than offset the cost of an automated system.

Automated Collections

Unfortunately for small businesses, collections are a big part of the receivables process. The best way to minimize the workload is to have an accounts receivable system that enables you to stay on top of aging receivables. Your system should be able to generate a receivables aging report sorted by the amount owed. By focusing on the larger amounts first, you’ll achieve your objective faster. The report should be reviewed each week by your management team and billing department to give it the visibility it needs.

If your process doesn’t allow for automatic reporting and sorting of aging receivables, you should consider an automated system.

Accept Electronic Payments

In this digital age there is no reason not to have your customers transact business electronically. Credit cards, Automated Clearing House (ACH), and Electronic Funds Transfer (EFT) are all readily available, low-cost options for accelerating the receipt of cash and minimizing float. In addition to streamlining the receivables process they each provide extra layers of protection against fraud. Electronic payments also go a long way to improving customer relationships.

Remote Deposit

If your customers still insist on sending in paper checks, new technologies like remote deposit, enable businesses to scan check images around the clock for instant deposits, so there is no reason to incur check float and other processing delays.

Customer Payment Portal

A dedicated customer payment portal or hosted pay page enables businesses to collect payments online. This capability also allows customers to set up recurring payments and provides businesses with an easy way to track and reconcile customer payments. Easy to set up, your Customer Payment Portal allows for one-time or recurring payments through your website and records payment history for up to seven years.

Partner with your Bank for the Most Suitable Solutions

The small business/banking relationship has changed dramatically in just the last few years. New technologies have ushered in the digital age bringing large-scale cash management and centralized processing to small businesses in ways that weren’t imaginable a decade ago. Now any business can link into the Automated Clearing House through its bank and benefit from streamlined collections and payment processes. The days of manual invoices and rushing to the bank with deposits before closing are over. And having the ability to manage all cash management functions online through a centralized portal provides the small business owner with a level of control that was unheard a few years ago.

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This article contains general information only. Sunflower Bank is not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, before making any decisions related to these matters, you should consult a qualified professional advisor.