Accounts receivables are an integral part of any business. While providing credit incentives to customers promotes business, improper management of accounts receivable can cause a waste of time and money. Hence, accounts receivable optimisation using appropriate strategies can help prevent such threats and reap the benefits of one’s credit policy.
Optimisation of accounts receivables consists of steps and procedures by implementing strategies to take advantage of credits given to debtors. A good strategy considers various factors such as customer expectations, customer relationships, incentives, cash management, and risk appetite. It also requires the sales and finance teams to coordinate and develop a strategy beneficial for the departments and the customers. Any strategies that encompass the above factors will reap benefits in the short term and long term.
Accounts receivable optimisation is key to liquidity management. Effective management of accounts receivables helps prevent a shortage of cash. Giving credit to customers invites additional cost in the form of opportunity cost, which refers to the cost of the next best alternative forgone. If funds are trapped in receivables, businesses may lose the opportunity to invest these funds in alternative sources and earn additional returns. Hence, developing strategies for optimising receivables is important to ensure funds are not trapped as accounts receivables for a long time.
Following are some of the steps that can be followed to optimise accounts receivables effectively:
Optimisation of accounts receivables is not an easy and quick process. Receivables and credits being the biggest parts of the business are required to be given extra attention to boost the performance of the business. The above strategies are not foolproof methods for every organisation, but they can reward your business handsomely in the short and long run with persistent efforts.
Accounts receivables are crucial for business liquidity. Optimisation involves strategies to manage credit effectively for maintaining cash flow. Early process implementation, automation, credit approvals, customer data maintenance, and regular reviews are key steps. Advantages include cash balance maintenance, efficient fund management, risk mitigation, simplified accounting, strengthened customer relationships, and cost reduction. Strategies vary but are vital for business success.