Supply chain issues, a tight labour market, rising inflation… anyone in business has already clocked the fact that economic conditions are uncertain and challenging, and that’s unlikely to change any time this financial year or the next.
Businesses are struggling to contain costs, offer employees the competitive remuneration necessary to retain their services and ensure they have the funds at hand to withstand disruptive events and make the most of emerging opportunities.
Australia’s Reserve Bank governor Philip Lowe has tipped inflation will hit seven per cent by December and, off the back of that development, interest rates and the cost of borrowing can only continue to increase.
Having access to sufficient working capital has become an urgent imperative, and, as a result, many Australian business owners and leaders are taking a hard look at their cash flow.
Slow flow
With good reason. BlackLine research shows that collecting money is taking longer – much longer – than pre-pandemic. More than two-thirds of companies globally report payment terms stretching out by as much as 10 additional days. Here in Australia, the worst offenders can be found in the construction, retail and transport sectors, according to 2021 research from the credit analytics bureau, Illion.
The ‘trapped capital’ your tardy remitters cling on to can represent thousands and millions of dollars, money that can’t be put to work in your business or used to reduce your borrowing costs by paying down debt.
Attempting to collect funds more aggressively can be stressful and time-consuming and, in some instances, can place customer relationships under strain.
The argument for automation
The alternative doesn’t have to be grinning and bearing it – and jacking up your overdraft to cover potential shortfalls.
One of the most effective ways for businesses to improve their cash flow – without investing in an army of reinforcements to work the phones – is by automating the accounts receivable (AR) function.
Historically, this aspect of financial operations has been the subject of underinvestment on the high-tech front. In many organisations, AR is rife with manual processes, but that’s set to change
This will entail replacing many of the repetitive manual processes associated with collecting and managing monies – recording transactions, updating ledgers, sending invoices and overdue payment reminders and maintaining accurate, up-to-date records – with tools that automatically perform the same functions.
BlacklLne research shows companies that make the switch can expect to reduce manual processing by as much as 85 per cent and improve their payment times by a whopping 23 per cent.
Smarter credit
Those faster-flowing remittances may be the solution to your cash flow woes – hence the reason some customers see a return on their AR automation investments within months rather than years – but the benefits don’t stop there.
Your automated AR platform can provide a wealth of up-to-the-minute insights into your customers’ payment patterns and credit worthiness. That’s business intelligence you can utilise in a number of ways.
The data you collect may reveal, for example, that a persistently slow payer may be happy to ignore reminder emails but will be stirred into action by a phone call to their financial controller. Have your AR team make that call sooner, and you may see your money the next day, not two weeks hence.
You’ll also be able to monitor customers’ ongoing creditworthiness and receive early warning should they start to slide into delinquent territory. That’s a benefit you may not enjoy if you’re running your AR in manual mode.
Adjusting their credit limits accordingly can help to limit your losses, should slow payment devolve into non-payment further down the track.
Conversely, extending additional credit to customers who pay on the nose is good for business and can help your enterprise grow safely and sustainably.
Capitalising on the opportunity to automate
In FY2023, the old saying, ‘cash is king’, remains as true as ever. Automating your accounts receivable function can help your business cut costs, supercharge cash flow and access up-to-the-minute insights to help you make well-founded decisions about the creditworthiness of your customers. It’s an investment in stability and prosperity that will help your enterprise weather whatever challenges this year has in store.
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