Few accounts receivable (A/R) functions are as essential to enterprises as the cash flow management process: an ongoing A/R measurement that tracks cash positions across your enterprise.
Maintaining accurate and thorough financial records supports liquidity, makes cash/asset utilization more efficient, and ensures your business has the means to perform longer-term financial planning.
A big part of this is cash flow forecasting, which entails analyzing your company’s history, customer payments, and vendor invoices to predict cash flows over a given period. It’s an essential process for any company but it becomes difficult – if not outright impossible – when plagued by business cash flow problems.
Common Cash Flow Management Problems and Solutions
What kinds of problems will enterprises experience during corporate cash flow forecasting? We’ll cover three common challenges:
- Poor A/R collections processes on the company side
- Lack of sufficient cash reserves
- Ineffective business organization and tooling
1. Poor A/R Collections Processes
With so many variables to assess across accounts, regions, and banks, it’s common for larger companies to struggle to pinpoint issues that impact late payments. A common culprit is usually delinquent customers. (And on the flip side, the poor internal A/R management practices that enable recurring delinquency!)
Failing to collect payments on time will have a noticeable impact on cash flow, but companies can hedge their bets by streamlining their own processes while making things easier for their clients.
Solutions: Decrease overdue payments and boost cash flow by optimizing the way your A/R team handles collections. Easy targets include creating automated workflows with personalized email templates that provide tailored reminders for customers to pay on time.
Also, consider which payment methods your customers prefer and whether adding other simple payment types may incentivize them to take action. If possible, you may want to renegotiate payment terms to eliminate other objections. The less work they need to do, the less likely they’ll show up on your receivables at-risk (RAR) ledger.
2. Lack of Cash Reserves
The COVID-19 pandemic demonstrated that businesses must be prepared for emergencies. Being prepared for contingencies relies on a strong supply of cash reserves – a challenge that enterprises across the globe struggle with.
Even pre-pandemic, research indicated as many as 90% of businesses in Europe, the Middle East, and Africa lacked visibility into their cash flows, and one in 3 businesses in the U.S., Canada, and Mexico had invoices in the A/R pipeline over 90 days past due. All these issues contribute to business cash flow problems, and they’re only the tip of the iceberg.
Solutions: A cash flow reserve is essential for maintaining the flexibility businesses need to weather the unknown. One way to build cash reserves is to identify and remove issues in your A/R process. For example, you can review customer behavior trends and leverage resources to reduce days sales outstanding (DSO).
Also, consider how employee labor and effort may be eating away at operational costs. You likely have many opportunities to set up automated statement processing, reporting, or dunning emails through a more advanced A/R solution. If you do, you’ll substantially reduce the amount of money and effort required for manual task-oriented activities.
3. Ineffective Internal Business Organization
In our experience as accounting technology integrators, we have noticed many enterprises don’t realize just how under-equipped they are for efficient A/R management. It’s not a problem only for collections. Your finance teams need the tools to track, plan, and budget your company’s financials as well. But when one department struggles, the rest are pulled down too.
Solutions: Establish accurate reporting and analysis across your enterprise by leveraging better tools that enable A/R automation. These provide a centralized hub for data that all teams can work from and eliminate many of the manual processes slowing them down. This streamlines your A/R process, contacts customers more efficiently in ways that enable faster invoice payment, and overall, accelerates your cash flow forecasting and management capabilities.
Gaviti automated solutions were designed for this very purpose. They’re purpose-built to bring visibility to your cash flow forecasting process and provide a new level of efficiency to accounts receivable overall. If you’re ready to learn how to solve cash flow management problems once and for all, contact our team.
We’ll help you assess your system and book a demo of our platform that will show you just how useful these tools can be.