As an entrepreneur, you likely know how difficult it can be to manage payment debts.
Whether you work in retail or provide a service, you likely have ongoing customers who may owe you money. If you don’t have a method of tracking and requesting those payments, you are likely to lose revenue, costing you and your business.
According to general statistics, companies write off 4% of accounts receivable as bad debt, costing them 4% of revenue. Although this may seem small, it can significantly impact your business.
For this reason, using accounts receivable management is the best option for most businesses.
Read on to learn more about accounts receivable management and why it’s crucial for any entrepreneur.
What Are Accounts Receivable?
Accounts receivable is a term that refers to the balance of money due to a company or business for its goods and services. Any amount of money owed to your business constitutes accounts receivable, and the more you allow customers to pay on credit, the more likely you are to accrue accounts receivable.
Many companies factor accounts receivable into their data, as it is a valuable metric to determine efficiency and adjust revenue.
Consider a retail company that allows customers to pay with credit. If a customer’s credit card has insufficient funds—or they request to pay you later—you’ll record this metric as an account receivable.
How Do Businesses Determine Accounts Receivable?
There are several methods you can use to determine your accounts receivable.
To calculate accounts receivable, you can determine the receivable turnover ratio or days sales outstanding.
Your accounts receivable turnover ratio measures the number of times your business has collected its accounts receivable over a given period.
Days sales outstanding is a metric that determines the average number of days it takes for a customer to pay you after purchasing a product or service.
What Is Accounts Receivable Management?
As an entrepreneur, you have enough without considering accounts receivable.
Thankfully, solutions are available to help you maximize your time and track this important metric.
Accounts receivable management refers to administering, monitoring, and tracking client payments and payment reminders. Control also allows businesses to prevent losses due to bad debt or fraud by monitoring unsuccessful transactions.
Additionally, accounts receivable management lets you inform customers that they must pay, sending invoices to help you account for lost funds.
While some businesses choose to write off accounts receivable, this can lead to significant losses for you and your business.
Some businesses hire a person to take charge of accounts receivable, but if you are an entrepreneur, you may need more funds or workforce to do so.
For this reason, consider using software for accounts receivable to maximize your time and improve your workflow. Such products allow you to get your invoices paid, measure your efficiency, and make it easier for your customer to pay you, improving customer loyalty.
Why Do Entrepreneurs Need Accounts Receivable Management?
Entrepreneurs are often strapped for time and under a tremendous amount of pressure. For this reason, they might have trouble tracking their debts and seeking restitution when appropriate. The point of accounts receivable management is to allow you to account for debts without investing too much of your time.
Consider the following capabilities of a high-quality accounts receivable management tool to learn more about what software for accounts receivable can do for you.
Improve Your Finances
Entrepreneurs often work with a tight budget—and every penny counts.
The most crucial benefit of accounts receivable management is that it allows you to improve your business’s financial health.
Account receivable management can help you:
- Create invoices
- Remind customers to pay
- Track payments
- Assess the health of your business
By accounting for your lost revenue, you can regain that money and funnel it back into your business.
Take Charge of Working Capital
Most entrepreneurs only have so much working capital to work with. An accounts receivable management tool can help you redirect your cash flow into more critical investments, such as new hires, capital investments, facilities, and equipment purchases.
Reduce Expenses
High-value software for accounts receivable can help you reduce your expenses in several ways.
First, an accounts receivable system will allow you to save money without hiring another person. You’ll also benefit by saving time—and time is money.
Automation is an excellent way to reduce your overall expenses, allowing you to divert capital elsewhere and focus on scaling your start-up.
Minimize the Sales-to-Payment Cycle
Your sales-to-payment cycle is a crucial indicator of your business’s health and longevity. Waiting too long between sales and payments can damage your business by reducing revenue and costing you customer satisfaction.
When you shorten your sales-to-payment cycle, you regain a better understanding of your budget, allowing you to maximize what you’re working with.
The software will automatically detect when a given period has passed, sending invoices and tracking your incoming payments accurately.
Minimizing Fraud and Credit Risk
When you accept credit payments, you are taking a risk. With nearly 400,000 reports of credit card fraud per year, it’s one of the most significant risks to your business.
Thankfully, software for accounts receivable will alert you about instances of potential fraud or debts, file reports in your records, and allow you to track your losses better.
Increase Efficiency
Automation allows for increased efficiency—and a software service for accounts receivable will undoubtedly improve your efficiency.
An efficient operation is crucial to customer satisfaction, employee retention, and personal well-being.
Improve Customer Service and Client Relationships
As you probably know from personal experience, most clients want to pay you—and they will do so when adequately alerted.
Software for accounts receivable management will ensure that your customers are automatically notified when they owe you a payment, preventing awkward situations that might damage your client relationships.
Additionally, the impersonal nature of an accounts receivable management tool will ensure that your customers don’t take the reminder too personally, enhancing their trust in you.
Lastly, if customers know you are prompt in requesting payments, they will be less likely to take advantage of your flexibility.
Create Valuable Reports and Track Cash Flow
Accounts receivable management is crucial to any business’s smooth functioning, particularly a start-up.
When you use software for accounts receivable, you can count on having access to essential data on cash flow and missed payments.
This, in turn, will allow you to manage your cash flow better and make more strategic decisions about your next steps.
Any entrepreneur knows that successful businesses are data-driven—and having accounts receivable management will ensure that you have access to every metric.
Stay on Top of Customer Payment History
Because an accounts receivable management tool allows you to track recurrent missed payments, you can better understand which customers are costing you over time.
This can allow you to budget more accurately and reach out to customers needing reminders to stay on top of their payments.
Ultimately, keeping track of payment history also allows you to foster more trusting relationships with your customers, which is essential in the early stages of business.
Reduce Stress and Regain Time
The most crucial aspect of software for accounts receivable is that it allows you to regain time better spent elsewhere.
When you focus on sending invoices, emailing reminders, and manually tracking your losses, you can’t focus on more important matters.
Additionally, this process can cost a great deal of stress.
Using accounts receivable management software will allow you to regain time lost and reduce overall stress, improving your business’s well-being.
Software for Accounts Receivable
While some companies choose to hire a person to manage their accounts receivable, most entrepreneurs don’t have that option.
For this reason, consider using high-quality software for accounts receivable.
Most software services offer multiple capabilities at an affordable price. Read on to learn more about the capabilities of software for accounts receivable.
Seamless Invoices
Some software services will automatically send invoices to your customers. These invoices are prompt and professional, so you don’t have to worry about reaching out directly.
Some software companies also offer personalized automation, allowing you to develop client relationships.
Useful Reports
A high-leverage accounts receivable software system will automatically generate valuable reports for your business. With this feature, you can track payments and history, generate cash flow estimates, create cash flow forecasts, and even obtain an expected payment date for your invoices.
Immediate Payments
The best software for accounts receivable will allow you to create personalized customer portals so your clients can immediately pay you in-app.
This helps automate the process and ensure maximum efficiency.
Top-Notch Security
When you use high-quality software for accounts receivable, you can ensure that your customer data—and your personal information—is protected by enterprise-grade security. Having tight security helps preserve your business relationships.
Integrations
The best accounts receivable management tools integrate with valuable software services like QuickBooks or Xero.
Integrations allow you to maximize efficiency and ensure accurate data across all your operations.
So, Do Entrepreneurs Need Accounts Receivable Management?
Most entrepreneurs would benefit from using high-quality accounts receivable management.
Consider using a software tool to accomplish this crucial capability, and watch as the money rolls in.
