Cash flow is the lifeblood of every business. Without it, there’s no working capital to fund short-term expenses and borrowing costs erode profit.
That is why, as a vendor, streamlining the invoice-to-cash process and reducing DSO is of paramount importance. Adopting a digital accounts receivable solution eliminates payment friction and makes it easier to manage DSO.
Vendors often think that if they sell goods and services with a reasonable profit margin, then working capital is a given. However, if goods and services are sold on credit, working capital sits idle until revenue is collected. This can be exacerbated by ineffective, manual accounts receivable (A/R) processes that cause cash to be trapped for longer periods than necessary.
A key metric used to determine A/R efficiency is DSO (Days Sales Outstanding). Keeping DSO as close to credit terms as possible provides increased working capital, and allows for businesses to better manage and forecast their cash flow. Also, reduced DSO helps businesses avoid cash shortfalls that can lead to increased capital costs and lower profit.
For many, the most difficult part of sales can be collecting revenue in a reasonable time. If the period between sale and collection is too long, there can be a ripple effect that negatively impacts the overall business.
These surprising numbers are primarily a result of inefficiencies that arise with manual A/R processes. Even more surprising, a 2015 study conducted by IOFM revealed that 49% of businesses still rely on spreadsheets to track everything from customer information to payment due dates to cash reconciliation.
Manually working though tedious spreadsheets to invoice customers and apply payments takes a tremendous amount of time and increases the risk of human error. In turn, these errors result in further delays as work needs to be repeated until the cycle is complete. All the while, DSO continues to grow.
Moving to an electronic invoice-to-cash (ITC) process is a great way to reduce systemic inefficiencies and increase customer satisfaction.
In this paper, we’ll take a look at how digital A/R solutions eliminate the largest inefficiencies and solve the problems inherent in a manual process:
Exception rates can be drastically reduced through the use of an electronic invoicing and payment solution. The same IOFM study determined that companies that adopt digital invoice-to-cash solutions enjoy exception rates as low as 1% to 2%.
The presence of a centralized A/R database eliminates spreadsheets that need to be manually updated. Vendors leverage their ERP and accounting systems to provide the electronic solution with real-time receivables and payment information, freeing A/R teams to concentrate on high-value tasks and improved customer relations.
Digital A/R solutions help increase productivity for any accounts receivable or collections team. With ERP integration and automated invoice delivery, customers enjoy an expedited payment process that improves the overall buying experience.
Vendors should no longer rely on inefficient, manual, paper-based approaches that impede their A/R teams and cause payment friction. In fact, continuing with manual processes puts vendors at a disadvantage because exceptions and delays reduce working capital and negatively impact the overall buying experience.