Making the most of today’s tools for managing accounts receivable

5 ways to optimize your processes to improve your cash flow


5 minute read

 

Key takeaways

  • Keeping your accounts receivable processes and solutions up-to-date is more important than ever
  • By analyzing payment trends, embracing digital tools and rewarding electronic payments you may be able to reduce the time it takes to collect payments
  • Optimizing how accounts receivable are managed can free valuable employee time and reduce the need for financing the revenue cycle

 

How your company handles accounts receivable is more important than ever in today’s business environment. The average days sales outstanding (DSO) — meaning the average number of days it takes to collect payment after a sale is closed — has increased from 39.7 days to 42.6 days since the coronavirus pandemic arrived, according to data from PYMNTs. This is putting pressure on many companies’ finances.

 

One way to help improve your cash flow is by empowering your team to shine a spotlight on your accounts receivable processes. Many companies find that fine-tuning how they are handling billing, invoicing and the receipt and tracking of payments can bring new efficiencies and savings, reducing the need for outside financing. Often, transitioning to using digital tools, automation and artificial intelligence is a vital part of these efforts. But executive buy-in is critical: “It has to be part of the company’s vision,” says Rodney Gardner, Head of Global Receivables at Bank of America.

 

Here are five ways to initiate change in your organization

 

1. Analyze payment trends

 

 

Improving accounts receivable starts with understanding how much effort is involved in each step of billing, invoicing, receiving and reconciling payments — and in collecting payments from specific customers. Those insights may allow you to pinpoint areas for improvement. Your financial institution may offer tools to help. “Companies that do the best job of managing their cash cycle have a clear understanding of each element in the payment process,” says Michael Harris, Director and Senior Product Manager at Bank of America.

 

2. Consolidate your technology

 

 

If your company has operations in multiple states or locations, you may find that your accounts receivable offices have each come to rely on different tools and platforms. Transitioning to a single electronic system may increase efficiency and give you greater visibility into how you are handling accounts receivable. “The best practice is to centralize it,” says Gardner.

 

3. Embrace digital payment tools

 

 

Many companies are moving away from accepting checks and migrating to digital payments to speed the receipt and deposit of payments and save money. The median cost of sending a paper check is $3.00 and receiving a paper check is $1.57, according to the Association for Financial Professionals (AFP).

 

”Businesses have the perfect opportunity to seize the moment and make the change to digital payments,” says Stephanie Wolf, Head of Business Banking, Government and Financial Institutions Treasury Sales at Bank of America. “Virtually everything is online right now.”

 

One decades-old solution is to accept payments made through the Automated Clearing House (ACH); the electronic system allows companies to eliminate the wait for mailed checks and the higher cost associated with them. “ACH makes it easier for your customers to take advantage of any discounts you offer for paying early,” says Gardner.

 

To reduce challenges associated with reconciling payments, financial institutions are now developing a solution that involves artificial intelligence and machine-learning enabled systems able to scan an ACH payment and look for all remittance data. Over time, the system learns customers’ behavior patterns and applies that knowledge to future ACH transactions. “No humans touch it,” says Gardner. But there’s also a new clearing system that might have the ability to replace ACH payments completely. Called Real-Time Payments, it’s a standardized electronic process for sending and receiving funds. Payments are settled instantly and are irrevocable. It was the first new clearing system introduced in the U.S. in more than 40 years when it was launched in 2017. Since then, about 60 banks have joined the network.

 

4. Reward electronic payments

 

 

If your customers are hesitant to embrace digital payments, you may consider incentivizing them. Some companies find it most effective to offer discounts to those who pay digitally. More than two out of three organizations would replace paper checks with electronic payments if there were cost benefits to doing so, according to the AFP. “You have to continually emphasize that point,” says Gardner.

 

If you work with B2B customers who tend to pay by check, consider dividing them into categories, based on how forward-looking their industries are about switching to digital payments. Then, starting with those who seem most open-minded about digitizing, approach them with the benefits of making the change. Listen closely to any concerns they have as you tailor the payment options you offer. “Companies have to find a solution that makes sense for their business,” says Harris. “It’s not one size fits all.”

 

“Businesses have the perfect opportunity to seize the moment and make the change to digital payments. Virtually everything is online right now.”

 

What if you’re in an industry that relies heavily on payments customers make to drivers upon delivery? If payments are usually made by check, the best solution may be to enable your delivery team to make remote deposits using your bank’s mobile app. However, if your drivers tend to receive cash payments — common for industries such as commercial bakeries that deliver to mom-and-pop stores — you may want to provide your delivery team with business deposit cards so they can make ATM deposits periodically during their shift. “That way they’re not riding around with thousands of dollars in their trucks,” says Jack Curtin, Director and Senior Product Manager at Bank of America.

 

5. Stay up-to-speed on the latest advances

 

 

As you upgrade your accounts receivable processes, it’s important to know what your competitors are doing and benchmark your company against the norm in your industry for digital payment activity. Industry groups, chambers of commerce and consulting firms specializing in this area can be a vital source of information on what has changed since last year.

 

While you may have to invest time and money to upgrade your accounts receivable processes, your efforts may bring substantial rewards. “Right now, it’s really important to make sure every single penny is collected and brought to the bottom line as quickly as possible,” says Wolf.

 


Stephanie Wolf | Head of Business Banking, Government and Financial Institutions Treasury Sales at Bank of America

Rodney Gardner, Head of Global Receivables at Bank of America

Michael Harris, Vice President and Senior Product Manager at Bank of America

Jack Curtin, Treasury Product Manager at Bank of America