How A/R Collections Data Can Improve Working Capital Management

Are you looking for new ways to improve working capital management? Most business owners have this on their annual to-do lists. It is crucial for small businesses that typically do not have the extensive funding of their bigger competitors. Small businesses have increasingly turned to automation to resolve operational issues, and maintaining cash in hand is no exception. So, how can account receivable collections and automation help them achieve this?

What Is Working Capital?

Before delving into the topic of A/R collections and automation, let’s first define what working capital is. Simply put, working capital is the amount of money a business has readily available for day-to-day operations. It often consists of cash on hand, accounts receivable, and inventory. It is important to remember these components when considering how to improve working capital management.

Consequently, when managers tackle the question of how to increase working capital, boosting cash flow immediately comes to mind. One of the most direct ways to boost cash flow is to increase the timely payments coming in from customers. Unfortunately, achieving this is not as direct a process and will require effective strategies and technologies.

How Accounts Receivable Data Can Improve Working Capital

Accurate and timely information is a priceless resource in any organization. Here’s how it helps with capital forecasting and other cash management aspects.

Accurately Forecast Cash Flow

Having accurate and up-to-date information on collections is essential for forecasting cash flow. You can use this data to predict when customers will likely make payments, helping you plan the timing of payments to vendors. You can also see where revenues are coming in late and take the necessary steps to collect them on time.

Make Smarter Decisions

Using collections data, you can make smarter decisions about payments and cash flow. For example, you can decide which customers should receive early payment discounts or penalties for late payments. This ensures that you use your working capital as efficiently as possible.

Monitor Accounts Receivable Aging

The collections data will also give you insight into how customers manage individual accounts. It allows you to identify which customers fail to pay on time and take the necessary action to ensure timely payments. This can help reduce bad debt and improve cash flow.

Monitor A/R Team Effectiveness

You can monitor their performance and identify any areas that need improvement. This will help you ensure proper accounts receivable management and cash flow maximization. Use this data to set realistic goals and identify room for improvement.

Prioritize Collection Tasks

The data from A/R collections will also help you prioritize collection tasks. Knowing which customers have the highest balances enables you to focus on collecting the most overdue payments first and reduce their total balance quickly.

Reduce Payment Frictions

A/R data can also help you identify payment frictions and rectify them. These are the issues that lead to customers not making payments on time. It could be anything from customer service problems to outdated payment processes and systems. Real-time data on collections will allow you to troubleshoot and fix these issues quickly.

Improve Customer Relationships

Collections data can also help you build and maintain strong customer relationships. By understanding each customer’s payment patterns, you can develop customized strategies to ensure timely payments. This will lead to more satisfied customers and improved cash flow.

Access Digital Records Easily

The data is often stored in digital records, which makes them easy to access and manage. By getting timely and accurate information on collections, you can quickly identify trends and make better decisions about managing your cash flow.

How A/R Automation Improves the Collections Process

Some companies use tedious and labor-intensive processes to calculate data. More often than not, this does not generate real-time analytics that companies can act on immediately. Even worse, workers tend to rely on spreadsheets, which are notorious for having errors. Here’s why automation is the way to go.

Centralized Dashboard

Automation centralizes the data into a single dashboard. This makes viewing and analyzing A/R collection data in real-time much easier. It also allows you to create custom reports and graphs for further analysis. Users can customize these dashboards to show them the information they need regularly.

Real-Time Updates

Automation also allows for real-time updates on collections. This means you will always have access to the most up-to-date information and can act quickly if needed. Managers will find this helpful information when they need to make fast decisions or seize opportunities that don’t come by often. For example, taking advantage of a liquidation sale from a former competitor going out of business.

Reduced Human Error

Using A/R automation eliminates many potential errors associated with manual processes such as spreadsheets. Automated systems are more accurate and reliable, as they are programmed to check data for accuracy and detect potential issues.

Reduced Overtime Hours

Automation can also help reduce overtime hours for staff and the associated costs. By automating the collection process, you can reduce the time employees spend manually entering data and tracking invoices. This frees them to focus on more critical tasks, such as customer service or sales.

Integrates with Existing Systems

IT teams can integrate automated collections systems with existing ERP or accounting systems. This will allow them to pull data from multiple sources, ensuring that the information is always up-to-date and accurate. The integration also makes it easier to reconcile accounts and streamline the collections process.

Improved Standardization

Finally, automated collections make it easier to standardize processes across departments. Companies can ensure consistency in their operations and eliminate discrepancies by having a single, trusted source of data and standardized methods. This can lead to better customer service, improved cash flow, and overall better working capital management.

Why Managers Need To Look Beyond Automation Solutions

Automation can do wonders for the accounts receivable process, but managers should also look into more comprehensive tools. Software options that focus solely on automation tackle particular problems and might meet the needs of some organizations. Companies seeking a more comprehensive solution should consider options that also include process and data management. Here are some specific add-on tools managers should review.

Workforce Management

Workforce management tools ensure the accounts receivable staff are organized and efficient. They automate processes like collecting data, scheduling tasks, and tracking payment information. These tools also provide visibility into the entire process, which can help managers identify areas where performance is lacking, or efficiency needs to be improved.

Intelligent Analytics and KPI

Having access to real-time analytics allows managers to make more informed decisions. These tools allow for intelligent metrics and KPI tracking, making it easier to identify trends and correlations in the data. This can help managers understand how different variables impact collections and where improvements need to be made.

Team Monitoring

Risk management capabilities help companies identify potential risks associated with debt collection. It allows them to monitor their team’s performance and identify areas that need to be addressed. This can help managers prevent fraudulent activities, ensure compliance with regulations like the Fair Debt Collection Practices Act (FDCPA), and reduce losses due to bad debt.

Task Prioritization

Task prioritization add-ons help managers assign tasks to the most qualified team members. It streamlines the process of creating and assigning workflows, ensuring the timely completion of tasks and the prompt handling of sensitive data. This can help ensure that all accounts receive consistent and efficient management.

Dunning Strategy Management

Dunning strategy management software helps companies manage multiple debt collection strategies and communications policies. It allows managers to set up thresholds for when a debt should be assigned to a collection agency or escalated internally and ensures that workers handle accounts correctly and in accordance with company policies. This can help maximize cash flow and reduce losses due to bad debts.

How Gaviti Can Help Companies Effectively Manage Working Capital

Gaviti provides a comprehensive automated A/R solution. Our software enables managers to streamline the entire collection process, ensuring accuracy and compliance with regulations. We also offer holistic tools so that the finance team can tackle the improvement of working capital from multiple angles:

  • With our intelligent analytics and KPI tracking, managers can quickly identify areas for improvement and take action accordingly.
  • Our integrated workforce management tools help ensure teams are efficient and performing at peak levels.
  • Our task prioritization software allows managers to assign tasks quickly so that organizations can ensure the most important jobs get the resources they need.
  • Our dunning strategy tools make it easy for A/R teams to create effective communications and standardize them across clients so that no one customer feels singled out or attacked.

These tools and more help companies maximize their working capital and improve the overall health of their business. Are you ready to see what Gaviti could help your business achieve? Book a demo.

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