3 Beliefs That Are Silently Killing Your Cash Flow

In business and in life, your frame of mind and driving beliefs can mean the difference between success and failure. Sometimes we all get stuck in a way of thinking that, whether we know it or not, is holding us back from reaching our full potential. When it comes to receivables management, these unconscious beliefs could be a silent drain on the cash flow you need to grow your business.

Belief #1: Invoice collection is not the problem or the answer, we need to sell more.

When cash flow is slow the gut reaction for many companies is to market more, bring in more leads, and close more deals; but before you invest in additional marketing and sales expenses, have you considered how much cash if currently tied up in outstanding invoices?

If you’re invoice collection process is ineffective, closing more deals is only going to create more outstanding invoices, not cash to improve the bottom line. Further, the longer those invoices go unpaid, the less likely you are to collect them and the more likely they are to be written off as bad debt.

So, when was the last time you checked up on your accounts receivable collection performance? Here are a few quick accounts receivable performance metrics to measure and how to interpret them as they interact with each other. Only when you understand your current standing can you begin to develop plans to improve collection effectiveness and improve cash flow.

Belief #2: We’re not the problem, it’s our customers who don’t pay on time

While it may be easy to place late payment blame on your customers, it’s usually not their fault. It’s a hard truth to swallow, but many times you, the business, are to blame for slow invoice collection.

Sure, you may have customers who are forgetful, purposefully pay late in an attempt to balance their own cash flow, and are not reaching out to you with their questions and concerns. But when is the last time you reached out to them about an invoice? When is the last time you reached out to them before the invoice due date? Many companies do not follow up on an invoice until after it goes beyond terms and at that point you’re too late. Your cash flow has already slowed.

While it may be the customer’s job to pay the invoice, it’s your job to remind them of their responsibilities with regular email reminders, phone calls, or letters. It is also your job to send the invoice with enough time for the customer to remit payment within the agreed upon terms, ensure the invoices you send are correct, and they there were received by the customer. It’s important to pay attention to detail, double check your work, and diligently follow up with customers since it has been reported that invalid or incorrect purchase order information leads to 49% of disputes and 11% of customers report that they didn’t pay on time because they never got the invoice.

Belief #3: My ERP or accounting system is the only tool I need to manage A/R

According to a survey of small and medium sized B2B’s, an overwhelming majority of companies (47.93%) are using their ERP business system or accounting software to manage credit and collections. The trouble is, these systems lack the functionality, control, insight, and automation required to support such a vital aspect of your business. In fact, independent industry analysts report that “ERP solutions are woefully inadequate in terms of receivables and collections management functionality.”

If you’re currently using your ERP or accounting system to manage invoices, you’re likely wasting a lot of time on necessary but non-value added tasks, such as printing aging reports, updating spreadsheets, and trying to decide what you need to do next when your time would be better spent calling customers, settling disputes, and other activities to turn invoices into cash.

So what can you do?

Explore modern technologies. In the past, the limited modules within your ERP or accounting system were your only option, but that’s no longer the case today. Take some time to research accounts receivable management software that integrates with your ERP system to centralize your data, automate your most time consuming and tedious tasks, and give you back the time you need to work with customers to collect payment.

If any of the above strike a chord with you, it’s time to re-think how you view accounts receivable management. It’s an important part of your business; manage it correctly by investing attention and technology, and you can increase cash flow significantly; manage it poorly and you could quickly find yourself in a flow crisis that you can’t sell yourself out of.

Learn more accounts receivable best practices to increase cash flow here.

Jeanne Wild is the Marketing Communication Coordinator at e2b teknologies, publishers of Anytime Collect accounts receivable management software. You can connect with her on LinkedIn or follow @e2bteknologies on twitter to pick up more accounts receivable management tips, trick, and best practices.

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