Accountants are often highly trusted advisors for small and midsized businesses. They turn to you in times of uncertainty and when their businesses face new challenges. This has never been more present than in today’s business climate; and when it comes to cash flow, the solutions have never been more critical. We know the importance of strong cash flow for these organizations. It often means, literally, keeping the lights on. Providing your clients with tangible actions they can take to improve cash flow may be one of the most important and impactful pieces of advice you can give.
In simple terms, improving cash flow or, said a different way, getting paid faster, comes down to a few targeted actions: send invoices quicker, offer digital options and only manage exceptions. Let’s break down each of these in order.
Send invoices quicker
Many SMBs wait too long to send invoices due to either process or operational capacity issues surrounding the invoice workflow. The activities required to generate, prepare, process and send invoices take significant effort and the people responsible have many other high-value tasks to get done each day. This often results in delays in sending invoices either weekly or sometimes monthly. Additionally, when manual processes exist, errors can occur, which create additional delays in the invoice delivery cycle.
Late communication with customers results in two different outcomes: a bad customer experience and a late payment. Old invoices are like fish sitting on the kitchen counter — the longer they are out, the smellier they get — and the less likely they are to be paid. Sending the invoice is the starting point for getting paid faster, and sending invoices faster has an immediate impact on cash flow.
Digital options and frictionless AR
If there is one area where many SMBs are behind, it is the transition to digital. That means sending invoices that allow customers to pay online through a channel most convenient to them. If your clients are still sending physical invoices or sending invoices via email but only offering pay-by-phone or pay-by-check, the cash flow bottleneck is obvious.
The business-to-business environment has evolved past physical processes. Accounts payable professionals expect a much more consumer-like approach to invoice payment than they have in the past. Access and convenience are key to improving the payment cycle. Online, self-service options make it more convenient and provide better access to the information needed to pay faster.
Only manage exceptions
Where we see the most time wasted across all business sectors is the way in which the account aging process is managed. The most common process looks something like this: Download the aging report to a spreadsheet software app, sort by highest balance or oldest balance, divide the list of accounts among collectors, and start making calls and sending reminders. Each week a new list is generated and the process repeats itself. This ends up being one of the most inefficient processes related to the entire cash collections process and has the most significant impact on cash flow.
The trick is to identify the customers that are most likely not to pay, so as not to spend more time than is necessary on customers that are likely to pay without intervention from the collections team. Efficiency skyrockets and cash flow improves.
Process improvement
While these three targeted actions may seem logical or even obvious to you, it may not follow that your clients will carry them out in the most optimal way. Every business process can be improved, and optimizing the invoice-to-cash process requires the implementation of targeted technology. While enterprise resource planning systems add significant automation to the overall business, targeted software enhances and optimizes specific business-critical processes. To better understand this, the invoice-to-cash cycle can be considered in two steps: invoicing and cash collections.
The invoice process starts with generating an invoice file from the accounting platform or ERP system. From there, a series of business rules must be applied. These business rules can vary significantly from business to business, often based on traditional, legacy practices. Examples of business rules include identifying VIP customers for special handling, removing zero-balance or low-balance invoices, pulling past due invoices, consolidating multiple invoices going to the same customer, emailing customers based on their contact preference request, and the list goes on. In my career I have seen more than 100 variations of customer-specific business rules — and no two businesses are the same.
All your SMB clients want to get paid faster, and that boils down to sending invoices quicker and offering digital options. Help them to understand the challenges and how they can be overcome. Modern output management and AR software strategies help SMBs manage business rules, automate processes, and identify customers who may need additional attention to get invoices paid.
