Maintaining sufficient liquidity to cover operating costs, pay down debt and invest in growth is a sure sign of a well-run business. For companies that struggle with this, there are a number of ways to increase liquidity, such as long-term financing or raising venture capital. But these options aren't always available, especially to smaller companies or those that aren't profitable. There is one strategy, however, that every organization can and should embrace: controlling cash flow.
Reducing costs helps improve cash flow, of course, but many companies already run lean, so there are limits to how much they can cut. Taking steps to increase cash inflows may be a better option. Selling more is one way to do this, of course, but that can be difficult. Focusing on accounts receivable (AR) can pay bigger dividends. While business leaders understand the importance of billing and collections, they don't always recognize the signs their AR function needs improvement.
Common Accounts Receivable Challenges
- Billing errors. No one likes being overcharged, so it frustrates customers when the wrong amount appears on an invoice. Billing errors aren't just a customer service issue, however. Customers who are charged too much typically withhold payment until the error is corrected. That impacts cash flow. An occasional mistake is one thing, but frequent billing disputes indicate real problems.
- Invoicing delays. When you invoice customers largely depends on your business model. A software as a service (SaaS) provider, for instance, would bill at regularly scheduled intervals, while a wholesaler might invoice customers when goods are shipped. Though the models are different, the billing process is tied to a specific date. And the longer it takes for an invoice to go out after that date, the longer it will be before the company gets paid.
- Inconsistent collections. In an ideal world, customers would always pay their bills on time. This doesn't happen in real life, however. In many cases, it's an oversight and the customer only needs to be reminded to pay their bill. Other times, it's intentional, either because the customer is having cash flow problems of their own or because that's just how they do business.
Unless there is a dedicated collections team, typically limited to only the largest companies, the task of following up with delinquent accounts falls on AR staff who usually lack the training to be effective. This results in a haphazard, catch-as-catch-can collections effort and higher than desirable days sales outstanding (DSO).
Cause and Effect
Before you can fix a problem, you need to understand the cause. If you're accounts receivable efforts are faltering, manual processes and disconnected systems are the likely culprits. To do their jobs, AR staff need information from other departments, which often involves working with multiple systems (or spreadsheets). They may need details stored in a CRM application, such as a customer's account number, an order management system that shows what the customer purchased, or other systems.
That data ultimately needs to be pulled into the billing application to create an invoice. And unless these systems are tightly integrated, some of that data will need to be reentered manually. This all takes time and creates multiple opportunities for errors.
Invoices may also need to be printed out and mailed, which takes more time. And if customers pay by check, those details will also need to be input. The net effect of this lengthy process is poor cash flow.
NetSuite Accounts Receivable
NetSuite accounts receivable helps improve cash flow by eliminating time-consuming manual processes and ensuring AR staff have access to the critical information they need to produce timely, accurate invoices. A centralized database provides convenient, role-based access to customer account details, order information and other relevant data from across the organization. Making this data available saves time and reduces errors by avoiding the need for duplicate data entry.
NetSuite automates the entire accounts receivable process, from billing customers to managing payments. Intelligent workflows identify completed orders and automatically convert them into invoices. The system calculates and applies appropriate sales tax then either sends the invoice to the customer via email or schedules it for delivery pending approval. NetSuite can also bill a customer's credit card or digital wallet automatically if authorized. And because accounts receivable is fully integrated with the NetSuite general ledger (GL), journal entries are automatically created for each transaction and posted to the GL.
NetSuite also helps reduce DSO by ensuring consistent, professional customer communications. Payment reminders can be sent automatically at specified intervals based on account balance, invoice aging or other criteria. Automatic emails can also be sent to alert customers of upcoming invoice due dates, helping improve on-time payments.
The combination of shared data and automated workflows save time, minimize errors and make AR staff more productivity, resulting in fewer billing disputes, increased collections and improved cash flow.
Learn more about NetSuite accounts receivable capabilities, register for the Suite Fundamentals product demo webinar on accounts receivable.