How Automation Builds Better Financial Stability

February 18, 2022

Companies of all sizes struggle to manage their finances. Liquidity often presents a challenge for large corporations while small businesses face the obstacle of attracting capital. Balance sheets help companies maintain a transparent summary of their finances to achieve both of these goals and more. Leveraging automation for financial services makes this even easier than ever before.

What Is Accounts Receivable Automation?

Automation for financial services refers to the use of software to help businesses reduce manual steps in the financial aspects of the business. This includes anything from accounts receivable automation to automated budgeting and forecasting.

Of all the automated financial services, AR automation remains one of the most popular. These are some of the many processes bots can tackle in AR:

Creating and submitting invoices to customers
Writing and sending payment prompts to customers
Providing real-time AR performance metrics and reports
Integrating with other software for expanded capabilities

What Is the Link Between Accounts Receivables and Balance Sheets?

The balance sheet details how much customers owe the company, which can reflect poorly on the business’s financial health. Strong accounts receivable performance is crucial to the health of the balance sheet because it accounts for cash flow or revenue.

The automation of AR helps improve the company’s liquidity and overall financial stability. It achieves this by simplifying the various complex and manual tasks the AR team uses to calculate the accurate payment statuses of each client and the total balance due.

How Can Automation Improve the Financial Stability of Companies?

Financial stability is the initial goal of any new business. It creates the foundation on which companies can build long-term success and growth. So, how can automation make this possible?

1. Improve Accuracy

Automation reduces accounting and administrative errors. This, in turn, ensures that management has accurate information to make key decisions that improve the longevity of the business.

2. Improves Risk Management

Accurate data also makes it easier for companies to properly manage their risks. This is especially important when risks directly affect cash flow management. Examples include global health concerns or seasonal fluctuations.

3. Improves Cash Flow

Automating tedious steps in AR ensures nothing falls through the cracks. This provides an immediate boost to accounts receivable performance. The AR team can then focus its efforts on tackling more challenging aspects of business accounting and collections than sending reminders or payment prompts.

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4. Reduces Operating Costs

Hiring bots via automation makes it easier for companies to expand the capabilities of the AR team without needing to hire new people. It also reduces the need for overtime hours. This, in turn, reduces overhead costs for the business while improving the ability to scale operations.

5. Improved Attractiveness to Investors

Before providing capital, investors want to know that the company is in a good position to meet its financial obligations. This includes paying its bills on time, meeting payroll, and expanding operations. Improved cash flow generates healthy balance sheets that show this and more.

What Are Some Key Financial Metrics to Measure Performance?

In order to measure the financial stability of a company, it’s important to track certain key performance metrics. Companies also need to understand how these metrics translate to real-life effects on the business.

Net Accounts Receivable: This measures the amount of money customers owe a business. The higher this number, the less likely it is that the company will be able to meet its financial obligations in the near future.
Days Sales Outstanding: This measures how long it takes a company to collect payments from its customers. The higher this number, the less liquid the company is.
Accounts Receivable Turnover Ratio: This metric measures how quickly a company collects payments from its customers. The higher this number, the better the company’s liquidity position is.
Cash Conversion Cycle: This measures how long it takes a company to collect cash from sales and pay its bills. The lower this number, the more efficient the company is with its cash flow.
Debt-to-Asset Ratio: This measures how much debt a company has compared to its assets. A higher ratio means a company is more leveraged and could be at risk if the debt is not repaid.
Current Ratio: This measures a company’s liquidity by dividing its current assets by its current liabilities. A higher ratio means a company has more short-term assets to cover its short-term liabilities.

Why is Gaviti Such a Remarkable Accounts Receivable Automation Solution?

Our team at Gaviti designed our automation software with small and medium-sized businesses in mind. Companies that use our AR tools leverage real-time performance metrics and AP assistants to achieve faster invoice payments and better overall AR team performance. Do these sound like benefits you want for your organization? Get started with a free demo today.