You might have the greatest business model to become profitable. However, unless you can manage your cash flow, you will find it hard to survive. Your cash flow is crucial for running your business, so that you can pay your staff, and acquire the required inventory for serving your customers.
In Q1 of this year, 40% of accounts receivables in the retail industry in the US were more than 90 days overdue!
Cash flow problems in many instances are avoidable, provided that you have a clear strategy such as having a proactive approach to managing your accounts receivables. Every dollar that is tied up in accounts receivable is a dollar less in cash. In Q1 of this year, 40% of accounts receivables in the retail industry in the US were more than 90 days overdue. According to another study by a US Bank, 82% of business failures were due to poor cash management.
So how can we overcome this issue which has become one of the fastest cash-flow killers of businesses?
First and foremost, you need to be proactive in formulating collection strategies for collecting payments from your customers. Sometimes it might help to employ deterrents such as late-payment penalties as part of your credit policies, for example, a 5% penalty after five days. A collection strategy can include incentivising customers through discounts for early payments. Introducing efficiency measures within your organisation, such as setting clear internal timelines for follow-up action is essential. Using collection logs to log information such as; when the initial invoice was sent, when to send payment reminders, when to make phone calls, when to apply a suspension etc.will be beneficial
Accounts Receivable Application by DataMPowered
The Accounts Receivable application by DataMPowered is a tool for strategizing and managing collection strategies for your accounts receivable. It provides all the information and business intelligence to make choices about how to manage your credit policies and collection strate
The Accounts Receivable application by DataMPowered is a tool for strategizing and managing collection strategies for your accounts receivable. It provides all the information and business intelligence to make choices about how to manage your credit policies and collection strate
The application watches over your data feeds for credit sales and provides a realtime narrative on the outlook for your accounts receivable and states the effectiveness of your collection strategies.
It allows you to get a high-level view of the current status of your accounts receivable. The Average Days Sales Outstanding (Average DSO) gives you an indication of how many days worth of sales are tied up in accounts receivable. Average Days Delinquent (ADD) shows the average time from a receivable’s due date to its paid date. It provides a snapshot to evaluate your overall collection performance. The Accounts Receivable Turnover (ART) provides a measure of how many times for the year you converted your accounts receivable into cash.
By viewing the movement of accounts receivable from when an invoice becomes due to when it is settled or become overdue allows you to look for patterns that might emerge over time. Figure 6 below shows how the settlement patterns are trending for accounts receivable.
One of the key feature of the application is the age analysis of accounts receivable. This allows you to monitor the health of your accounts receivable and analyse when further action is required. Figure 7 shows the age analysis at a group level, showing the aging of invoices.
By clicking on a pie-slice will allow you to drill down to further investigate on the status of its respective accounts receivable. Let’s look closer into the invoices that are overdue by more than 90 days.
It shows that Company 10 has 35.1% of its invoices settled more than 90 days late. By hovering your mouse over each slice, will also show the overdue amounts.
By clicking on Company 10 or its corresponding pie slice will show the accounts receivable outlook for the company (Figure 2).
Looking at the age analysis of its invoices, confirms that 2,975 invoices, are settled more than 90 days past its due date, which is 39.8% of the total invoices (Figure 9).
Looking at the break-up of the customers who pay their invoices later than 90 days shows that Customer 1 settles 44.9% of their invoices later than 90 days.
By clicking on Customer 1 or the 44.9% slice will show the Accounts Receivable view for Customer 1 (Figure 3). The auto-generated narrative for Customer 1 is shown in Figure 10.
By clicking on the customer score link shows the customer score for Customer 1 (Figure 11).
The application also predicts with an accuracy of 96% that Customer 1 will settle their future invoices more than 90 days late. This should prompt business to review their credit policy with customer 1 (Figure 10).
There is also a downloadable collection list listing out all the invoices that are more than 90 days late with recommended collection strategies.
By using the Accounts Receivable Application from DataMPowered will help users to effectively monitor, track and take action on their delinquent invoices. It also helps to put strategies in place to manage their accounts receivable proactively. It allows organisations to improve its working capital by helping to:
- Reduce the Days Sales Outstanding (DSO)
- Increase the turnover of accounts receivable
- Free up more cash
- Implement proactive collections through predictive models
If you would like to explore further the use of this product, all you need to do is register yourself as a user from the Accounts Receivable Product page and start exploring.