When people first start a business, they usually don’t think too much about the actual necessity of managing everything successfully and on time. Of course, some things do cross their minds, such as the idea of keeping the customers happy with great quality products and services, managing inventory and ensuring smooth operations overall. Yet, people often forget about some important finance related things, until they start that business and then see just how important those are.
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Anyway, what I am trying to hint at above is the fact that you need to carefully manage your business finances in order to reach the success you are after. And that, among other things, includes the proper management of your accounts receivable. I am sure you know that doing this is essential for maintaining a good cash flow, and thus keeping your overall business healthy and financially sustainable.
Now, accounts receivable actually represents the money that is owed to your business by the clients for any kinds of goods and services delivered on credit. It will, as you may have guessed it, appear as an asset on the balance sheet, but it will not actually represent cash in hand, which is why the timely collection is of utmost importance for your business, and for your operational success. And so is, of course, effective and optimal AR performance.
To optimize that performance, though, you will have to become aware of the different AR factors that impact it. By doing so, you will get a clearer idea about which strategies to use in order to enhance performance. So, what we are going to do right now, thus, is get you familiar with those factors, in an effort to help you optimize your AR performance more easily.
Internal Factors to Take Into Account
First things first, you should be aware of some of the internal elements that influence your AR. In other words, we are going to take a look at the internal Accounts Receivable Factors first, and then proceed towards checking some external ones. This way, you will get a clearer idea about what you can affect and change, and what may simply be out of your control.
One of those highly important factors are, of course, credit policies. Those are the policies that set guidelines for credit approval, as well as for monitoring and management. Through them, you can classify the customers by risk profile, as well as set credit limits and regularly monitor them. Don’t forget to review these policies from time to time, to ensure that they are up to date and still relevant.
Of course, invoice accuracy is certainly one of those factors that we cannot fail to mention. As well as proper invoice timing. This means that optimizing starts with creating clear invoices that will include all the necessary details, such as due dates and similar, as well as sending the invoices pretty much as soon as the product or the service is delivered. The importance of accuracy and timing is precisely what makes automation so useful nowadays, and why so many people are relying on software solutions for their AR optimization and management.
In addition to the above, there are other internal factors to consider, such as payment terms and conditions, as those will have a direct impact on how customers will pay. Then, there is the billing timeline, and I’m sure you understand its importance. Of course, don’t forget your staff expertise and training, as well as the AR technology infrastructure that can, as I’ve hinted at already, make things a lot easier by automating plenty of processes. Go here to understand how automation in general helps.
External Factors to Keep in Mind
As I’ve mentioned above, there are also some external factors to keep in mind. For one thing, you have to monitor economic indicators in order to adequately adjust your strategies, and to keep the overall market competition in mind. Then, there are also some industry specific challenges to keep in mind and address. Naturally, the financial health of your customers plays a major role here as well, as it will have a direct impact on their payment reliability.
Optimizing Performance
Now that you’re familiar with those important factors to consider, what you want to know next is how to actually easily optimize performance. And, this is where those software solutions and tools that I’ve briefly mentioned above come into play. In short, the key is for you to find the right piece of software that you’ll be able to integrate with your current systems and that will make AR management in general much easier, with the help of automation and continuous general support. So, partner up with the right provider and start benefiting from this option.
