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A Guide to Embedded Lending: What Is It and Why Is It Important?

Posted by Grant Burrall - 08 August, 2022

5 Ways to Improve A/R Performance & Receivables Management

Topics: Finance, Credit, Management

While seemingly innocuous, the mishandling of receivables management can cripple your organization. Behind those receivables is the reward of free cash flow and greater liquidity, but you can’t use that free cash flow until your customer pays you. That cash could be paying off debt, raising dividends, repurchasing company shares, making acquisitions or increasing investment in R&D.

While there are many industry-specific characteristics of companies with best practices around receivables management and A/R performance, these are 5 characteristics of top performers regardless of industry. 

5 Characteristics of Top Receivables Management and A/R Performance

1. They have a strategic approach to managing receivables.

Many companies see receivables management as an administrative function that requires a tactical solution, and it is. A B2B company needs a large collections staff and clearly defined processes around account maintenance. Still, receivables management also requires a strategic approach. It is a function that is often driven by the company's sales strategy. You need to decide how your current approach supports the company’s goals, particularly the company's sales goals.

2. They have a clear communication plan to develop, implement and enforce the strategy.

Your AR management strategy should be shared throughout the organization. It may be that your company has adopted a loose credit policy to generate higher sales. If you charge interest while managing credit risk, and dedicate more time to enforcing payments, you may be able to generate a return. In other words, you could become a bank. If an overzealous sales strategy suggests a looser credit policy, it's important to communicate what the full impact of loose credit means on cash flow.

3. They have reliable data. 

Data quality is an underrated characteristic of improved receivables management -- garbage-in, garbage-out. If your data is wrong, billing accuracy and order fulfillment errors will feed customer disputes. Reliable data is also required for making reliable strategic decisions.

4. They have a clear process for conflict or dispute resolution.

Dispute prevention improves productivity. A dispute is any action the customer takes to delay payment. Some disputes are with product quality while others are with billing accuracy and order fulfillment. Every dispute has the potential to lock up cash so the faster a dispute gets resolved, the better your DSO (days sales outstanding) will be and the more free cash flow you will have.

5. They use metrics to track progress. 

Metrics like DSO, receivables aging and liquidation value can help to track results. There are literally dozens of credit metrics to choose from. The hard part isn’t deciding which metrics to use, it’s figuring out what they mean. What you don’t want to do is develop a metric that directs a great deal of effort to low priority issues. 

The Ideal AR Solution

    The shortest distance between two points is a straight line. -Archimedes

The only straight line in accounts receivable management is cash, but there are numerous credit management solutions available to help you improve the process through automation. Still, a bad manual process is a bad automated process. Whenever possible your goal should be to eliminate the bad processes while automating the good ones. 

Perhaps the best way to improve receivables management is to eliminate certain processes altogether. The holy grail of A/R management is figuring out a way to offer credit to your customers without taking on the associated credit risk. In other words, if there is an ideal A/R management solution, it offers A/R automation with the prospect of A/R elimination.

Looking for a functional and proven solution for your A/R management needs? Apruve can help. Manually managing an A/R department or refining an existing system can be a challenge – automate instead! Apruve makes your financing and accounts receivable process easier with Apruve’s credit and A/R automation programs. Learn more about Apruve or contact Apruve’s specialists to sign up for a demo today!

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ABOUT APRUVE

Apruve enables large enterprises to automate long-tail credit and A/R so you can stop spending 80% of your time and resources on 20% of your revenue. We partner with each of our customers to solve their unique credit, payment, and accounts receivable challenges and build the right credit solutions for your markets, customers, and goals. 

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