Many companies typically do not have defined strategic plans around receivables. While all companies look to expedite collections, there’s another level at which companies can assess the true cost of the process. That involves getting down to personnel, the payment types and the material affected. For example, companies operating only with antiquated payment options such as checks often aren’t thinking about the time that it takes for that payment to get to the recipient and the time it spends sitting on somebody’s desk before the check gets processed and into the bank.
“There’s time value around that,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “If those payments can be expedited into the bank to make them liquid faster, they’ll have more value to the company, either in the form of reducing interest expense, or if they’re not in a borrowing position, they’ve got more liquidity to invest and make more income.”
Smart Business spoke with Altman about the receivables process and how a closer look can uncover opportunities to improve efficiency.
How do payment methods factor into efficiency?
Businesses have many choices when it comes to payment methods. There are traditional methods such as checks, Automated Clearing House (ACH), wire transfers, credit card and cash, as well as newer methods like PayPal and Real Time Payments (RTP).
In addition to new payment methods being developed, technology that helps automate legacy payment methods, like checks, can produce significant benefits to businesses. Many of the newer solutions center around the collection process, end to end. eBill Present & Pay (EBPP) can deliver an invoice electronically and includes built-in payment options. The solution can dramatically improve payment speed for a business while creating a positive customer experience.
Why should businesses have a receivables strategy?
If a business doesn’t have a formal strategy around receivables, it is likely missing out on opportunities to accelerate cash collection and reduce operating cost. Understanding where customers are located, how they prefer to pay and what billing and payment alternatives are available can lead to improved methodology in invoicing, payment processing and payment posting. That can lead to reduced Days Sales Outstanding (DSO), lower operating expense and reduced interest expense, or alternatively, additional interest income from excess cash invested.
Companies, however, often aren’t thinking beyond the task to try to make the process more efficient and identify areas of potential improvements. That could mean adding more automation to the invoicing process to move payments faster, shifting from weekly invoices to daily. They could consider adding on a reciprocal payment channel to invoices to make it easier for customers to pay and giving them more payment options. Companies can be resistant to change, but a fresh perspective on the process can lead to opportunities for improvement.
What should a review entail?
In a receivables review, assess the full cost of the process, including personnel and operating costs for invoicing and posting, as well as payment methods, cost and timing. Once that is complete, review the current best practices for the industry, and payment solutions available, and compare. Bankers can help with this process by bringing insights from other businesses and industries to highlight what’s happening within and outside their environment. There are areas in which technology may be beneficial to implement, so highlighting where other companies see benefits can help advance organizational objectives.
There are many opportunities that can be gained through having a focused strategy around receivables. Many businesses, however, don’t focus on the process, which can lead to outdated payment methods and manual processing and posting methods, the costs of which add up. Take receivables seriously and proactively review the process on a periodic basis. Customer behaviors and payment technology are constantly changing, so stay informed and have a plan. Talking with a bank partner is a great place to start in understanding the payment environment as well as what solutions are available and would work best. ●
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