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How Can Businesses Manage Accounts Receivable amid a Crisis?
Businesses worldwide have learned a lot in the past few months. While stepping forward, companies adapt to the new normal and find ways to cope with growing market trends. As we navigate through the COVID crisis, adequate accounts receivable management becomes crucial. Especially, when it comes to improving the company’s cash flow and financial performance.
As a business owner, you should focus on collections while cooperating with everyone relevant to your company – customers, suppliers, partners, etc. Aside from increasing cash visibility, optimized collections will add up to your resources.
Tips to Improve the Accounts Receivable Process in Times of a Crisis
Know Your Customers Better
Amid a crisis, you must know what your customers are going through; some of them would be able to make a payment while others might not be. Checking up on customers also helps determine total AR.
Offer complete support to your customers in the hard times as once things settle down, your genuine concern toward them will be much appreciated and remembered.
Keep them Informed
The best you can do in business is taking care of the existing customers while attracting prospects through lucrative offers. Keep your customers informed about what your company is dealing with, and in case if there might be any delay in delivering their orders, tell them this too.
Your existing customers add to your revenue; thus, focus your efforts on keeping them happy, even at an expense. You are more likely to get paid by an existing customer than a new customer because you already have a productive relationship with the existing ones. You also need to be more flexible in accepting payments if you want repeat business from them.
It is less expensive and easier to retain a customer than to find a new customer, especially in difficult times.
Check how AR is Managed in Your Company
Managing cash flow, essentially accounts receivable, is vital at all times, but there is no more critical time than amidst a crisis. For this, the first thing to ensure is that your financing options remain viable. The previous financing sources may no longer be available during challenging times.
Secondly, when the economy is booming, many companies become relaxed with their receivables, whereas, during a crisis, you should expedite your receivables.
Economic activity among advanced economies is anticipated to shrink 7% in 2020 as domestic demand and supply, trade, and finance have been severely disrupted.
Thus, it becomes crucial to check how your receivables are being handled; conduct a thorough audit of collections. Make sure your team managing accounts receivable is collecting the right amount for goods and services you sell and following up on late payers.
Offer Extended Payment Plans
It is essential to review customer payment terms, especially during a crisis, to encourage them to pay on time. This becomes vital if you have customers who you usually have to pursue for payment. To improve the accounts receivable process, you need to follow up with each of your customers. This is to consider their financial situation, whether they need a change in the payment plan, an extension, or they are fine paying the actual invoice amount by the due date.
Negotiating and offering flexible payment plans is helpful; for instance, if your clients or customers are willing to make partial payments, consider allowing. This way, you are getting something instead of nothing.
Establish the Extension
Depending upon the intensity of the crisis, many of your customers might not be having a job, not be getting paid, and not be having money to pay you, even on a temporary basis. If you already have some customers who cannot make payments to your company, you may consider extending payment terms for 2-4 weeks.
It would be best if you establish the extension as per your own set of requirements; also evaluate each customer and their circumstances on a case by case basis.
Avoid Adding Late Payment Fees
You might not have complete knowledge of what your customers might be dealing with; not all customers will be able to contact you to inform you about their inability to pay. During a crisis, when customers adjust to the new normal and settle their feet again, you may avoid adding late payment fees as a courtesy.
You may consider doing it temporarily until everything soothes down again, and the public becomes a little more financially stable. As you show your goodwill toward customers during a hardship, they will keep this in mind, and that’s how you can also enhance customers’ trust in your company.
Offer Discount on Advance/Upfront Payments
You will have customers that might be ready to pay you the total due amount, and you should accept it. Many people feel free from payment obligations when they pay full bills, avoiding further challenges.
Besides, you may also offer a discount to customers paying payment in advance. This will not only encourage them to pay you as soon as possible, but you will also be able to protect cash flow from dipping down.
Offer Multiple Payment Options
Allow your customers to pay their bills through multiple channels. With this, you can expect all customers to make a payment. For example, many would prefer paying you through cash or check while others would pay through online payment portals. Here, allowing different payment methods ensures most customers will pay on time using their preferred payment options.
Automation can do Big Help
Automating the AR process can transform the way you handle collections. With automation-powered software, you can have a more accurate records management system, avoiding more potential losses due to mismanagement of billable hours.
It is advised to have a team dedicated to overseeing software tools to ensure higher accuracy in accounts receivable management. Your AR team can use automation tools for data entry and generating AR reports; with this, they can invest the saved time and energy in following up on late payments.
Regularly Review Your AR Process
When cash flow management is already challenging, you might want to review AR and AR turnover more often than usual. Doing this will help you become aware of the improvements you need to do from time to time for your company’s financial well-being.
Accounts Payable is Equally Important
For better business accounting, you need to stay updated about all debits and credits. Consider preparing sheets for the same; you can use affordable record management tools available online to note how much you need to pay, how much you saved or how much is left, etc. Keeping track of income and expenses will help handle the overall financial activities better.
Also, non-payment in business contracts usually has repercussions, making you pay additional costs, and disrupting other processes, hampering business productivity. In case of a crisis, you first need to deal with those accounts payable with higher interests or costly late payment fees. This ensures you make all necessary payments on time and protect your credit score from going too low.
The COVID-19 pandemic has had a huge impact on the world economy, further influencing trade, operations, and financial transactions. However, as workplaces are continuing operations in compliance with essential employee safety guidelines, having cash reserves is becoming more crucial than ever.
Businesses should adopt a strict discipline in making a balance between collecting money owed and maintaining customer relationships. The key is good, positive communication with customers and complete transparency. Business owners also need a real-time view of the financials to make strategic, appropriate, financially informed business decisions.
At Cogneesol, we help businesses with AR processing through our quality accounts receivable services. We help achieve the accounting transparency and insight that you need to maintain cash flow and focus on preparing and implementing business sustainability strategies. With our extensive industry experience and technological expertise, we offer accounting back-office support to businesses across the world.
Cogneesol– one of the leading accounting outsourcing services provider, is there to help you with receivable management during the crisis. We ensure optimum cash flow to make sure your business operations remain uninterrupted. To discuss more on how we can help, contact us today; call +1 833-313-3143 or email [email protected].
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