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Make Your Working Capital Work for You: Ways to Optimise Your Accounts Receivable

by | Sep 13, 2021 | 0 comments

Accounts receivables are one of the most important components of your working capital. Receivables refer to the money which you must receive from your debtors, i.e., the people you sell your products or services to. When you get your payments on time, your working capital remains in good health.

But many people struggle to take control of their receivables process. When this happens, increasing cashflow becomes difficult and it becomes challenging to run your business operations.

Here we explore what you can do to ensure your accounts receivables practices work well and you optimize your collections.

Step 1: Make accounts receivables a key metric in financial performance measurement

Many times, working capital takes a backseat when we’re measuring company profitability and financial health. Typically, the section which companies falter with is the accounts receivables. When you don’t keep an eye on your receivables, it becomes difficult to identify any existing problems with our receivables process.

But, when you make your accounts receivables a KPI, you strictly track your receivables and you get a better picture about who owes you what. You’ll be able to identify customer accounts that are draining your coffers and amend those processes that are harmful to your working capital health.

Step 2: Bring your departments together to ensure a collaborative collection effort

Accounts receivables management isn’t just the prerogative of your company’s accounts department.

The sales team, which deals with clients on-the-ground, plays a huge role in getting collections faster. Additionally, your finance teams – who control budget allocations – affect the company’s ability to offer extended credit periods and limits to customers.

When your sales, accounts and finance departments work together, you will have a bird’s eye view of your accounts receivable management processes. You will be able to determine the exact payment terms and credit limits to be offered to each customer, to ensure you’re always repaid and have the lowest default rate.

One process to initiate here is a comprehensive credit check to gain credit insights about current and prospective customers. This credit check will give you information about the purchase and repayment history of your customers, whether there were any defaults and the frequency of on-time payment vs default. This way, you’ll be able to plan how to reduce your default rates and ensure you receive your payments and your working capital is optimized.

Step 3: Use a robust Accounts Receivables Solution to collate bills of the same customer

It’s easy to miss out on a specific invoice when the same customer has a hundred different bills. This is where Accounts Receivables Solutions like accounting software, order management software and a master excel sheet can help. They give you the means to bring together data that is completely staggered in your system and make sense of the overall receivables each customer owes you.

When you have this collated information in a single place, there’s a lesser likelihood of your missing any bills that need to be followed up. Plus, this will help you identify any wrongdoing that any customer might be doing to cheat the system.

Step 4: Automate your receivables to ensure you always get paid on time

Finally, the best way to optimize your working capital and get your payments is by automating accounts receivables.

Manual receivables management can lead to a lot of errors. You may either claim lesser than what is owed to you or accidentally include wrong invoice details that can reduce your credibility in front of your customers.

But software like MYOB, XERO & Netsuite can help you manage your invoices carefully. These tools also take control of the payment follow-up process, ensuring you don’t need to do the heavy lifting. Contact our team at ezyCollect for more information.

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