Handling the cash outflow and inflow is a key element in any CFO’s job. However, it’s never going to be an easy one. This is especially the case when we consider accounts receivable management. It might be a simple matter to set terms and send invoices. However, it is harder to manage the policies and processes that allow the company to receive payments in a timely manner. Any CFO knows that cash flow can easily be unbalanced. After all, you must cover essential expenses. But what happens if payments aren’t coming in on time? Lacking the cash to pay for those expenses can be a major headache for any CFO.
How can chief financial officers improve their collection performance? It’s something they must do if they want better control over their company’s cash flow. Here are three tips to help address the issues. You’ll soon get the balance right between cash out and cash in.
Tip 1 – Identifying Potential Issues at The Earliest Opportunity
Perhaps the most important tip for accounts receivable management is to be selective when extending credit. Even when you’re confident of a customer’s ability to repay, ensure you have tight controls over the repayment period. Tightening up these areas needn’t be as difficult as it sounds. With strict criteria in place that Accounts Receivable and sales employees can follow, life becomes easier. Bad debt, disputes, and late payments will be greatly reduced. This is because you’ll no longer be giving credit to any customer who could prove problematic.
So, how can you put these criteria in place? Here are our tips:
- Ask every new customer to complete credit applications. Even repeat customers asking for a higher credit limit or terms adjustment should complete a new form. This will enable you to make the most informed decisions.
- Always document the regulations, procedures, and rules for checking on how worthy each customer is for credit. Make sure you clearly outline all policies regarding the terms and limits. This will ensure all staff members are on the same page.
Tip 2 – Basing Cash Forecasts from Customer Behavior
Many CFOs find forecasting their company’s accounts receivable is an especially difficult task. This is because it can be very difficult to guess in advance when customers are going to pay. While you know when payments are due, not every customer will make a payment on time. It is especially difficult to determine when new customers are going to pay. However, when it comes to repeat customers, you can probably observe a payment pattern. You will already know whether they pay early, late or on time. If they pay late, how late do they typically pay? Is there a pattern depending on the size of the invoice? It is important to identify the pattern and harness it so you can predict cash flow accurately.
Tip 3 – Using Advanced Tools to Improve Accounts Receivable Management
Measuring, monitoring, and, of course, improving accounts receivable performance is one of the best ways to boost cash flow. Using advanced tools is a key way to handle this aspect of a CFO’s job. Spreadsheets and ERP are not the best way to manage accounts receivable data. Using up-to-date computerized systems is the way forward. With all essential metrics available instantly 24 hours a day, it’s easier to make important decisions confidently. Employing effective payment tools, such as a web portal payment system, is also beneficial. By making it easier for customers to make payments, timely receipt of money owed is more likely.
BillingTree’s cutting-edge payment systems are the perfect solution for improving your company’s accounts receivable management. By adopting BillingTree’s advanced solutions, CFOs everywhere can reap the benefits of more timely payments.