In order to maintain a successful small or medium-sized enterprise (SME), it's important to have efficient and reliable systems in place for financial stability.
Accounts receivable automation can play a major role in this, improving your bottom line and helping you measure the performance of your business.
Keep reading to learn more about how accounts receivable automation can benefit your SME!
What is accounts receivable automation?
Accounts receivable automation is the process of streamlining and automating your accounts receivable workflow.
This can include tasks such as invoicing, payments, collections, and more.
By automating these tasks, you can free up time for yourself and your team to focus on other areas of your business.
Not only that but automating your accounts receivable can also help to improve your cash flow and bottom line.
How do accounts receivable impact your bottom line?
Your bottom line is directly impacted by your accounts receivable.
Invoices that go unpaid can quickly eat into your profits, so it's important to stay on top of your receivables.
Similarly, late payments can cost you money in fees and interest charges.
On the other hand, if you're able to collect payments quickly and efficiently, it will have a positive impact on your bottom line.
How can you measure the performance of your accounts receivable?
There are a few key metrics that you can use to measure the performance of your accounts receivable.
DSO
First, you'll want to look at your days sales outstanding (DSO). This metric measures how long it takes for invoices to be paid, on average.
A low DSO is indicative of efficient collections, while a high DSO indicates that there's room for improvement.
Collection rate
Another important metric is your collection rate. This measures the percentage of invoices that are paid on time.
Ideally, you want to have a high collection rate and a low DSO.
CCC
Connected to your DOS and collection rate is your cash conversion cycle (CCC). The CCC measures the number of days it takes for a company to convert its inventory into cash.
A shorter CCC is indicative of a company that's efficient at converting its sales into cash.
D/A
Your Debt-to-Asset Ratio (D/A) is another financial metric that's important to monitor.
The D/A ratio measures the percentage of a company's assets that are financed by debt.
You want to maintain a low D/A ratio, as this indicates that your company has a strong financial position and can easily cover its debts.
Current ratio
Finally, your Current Ratio measures your liquidity, or your ability to pay off your short-term obligations.
You want to maintain a ratio of at least one, which indicates that you have enough assets on hand to cover your liabilities.
Automating your accounts receivable process can help you improve all of these financial metrics, and in turn, build better financial stability for your business.
If you'd like to know more about what accounts receivables KPIs, check out our deep dive into which 10 accounts receivables KPIs you should be tracking in your team.
How can accounts receivable automation improve your financial stability?
There are many ways in which accounts receivable automation can improve your financial stability.
- First, it can help you get paid faster by automating the billing and collections process.
- Second, it can help you reduce late payments by providing reminders and follow-ups.
- And third, it can help you keep track of your receivables so that you can make more informed decisions about your cash flow.
How does automation make all this possible? By addressing and improving the following key parts of your accounts receivables process:
Accuracy: Automation can improve the accuracy of your invoices and reduce errors in billing while also providing you with better data for decision-making.
Risk Management: In turn, accurate data can help you manage risk more effectively and make sounder decisions about credit extension and collections. Coupled with regular credit checking, this can further reduce your risk of bad debt.
Efficiency: Automation can automate repetitive and time-consuming tasks such as data entry and help you speed up the collections process by automating tasks like sending reminders and follow-ups. This, in turn, frees up skilled staff to work on other tasks and can help improve your bottom line.
Improved Customer Relations: When customers know that they will receive timely and accurate invoices and that they can easily make payments, they are more likely to do business with you again. This improved customer service can help build long-term relationships and improve your reputation.
Reduced Costs: Automating your accounts receivable can help reduce your administrative costs. This is because you will no longer need to spend time and resources on manual tasks like data entry, printing, and mailing invoices.
Improved Cash Flow: One of the most important benefits of accounts receivable automation is that it can help improve your cash flow. This is because automating your collections can help you get paid faster. In addition, automating your invoicing can help you avoid billing mistakes that could lead to delays in payments.
Tracking: Automation can help you keep track of your receivables so that you know who owes you money and when the payments are due. This information can be very helpful in managing your cash flow and making sure that you are paid on time.
How Chaser can help
Chaser offers an automated accounts receivable solution that can help you get paid faster and improve your cash flow. With Chaser, you can automate your reminders, invoicing, and payments so that you can focus on running your business.
In addition, Chaser’s advanced tracking features can help you keep track of your receivables so that you know who owes you money and when the payments are due. This information can be very helpful in managing your cash flow and making sure that you are paid on time.
To learn more about how Chaser can help you improve your financial stability, visit our website and start your free trial today!
