Accounts Receivables and Payables. – Who is the Culprit – Customer, Supplier, or Us?

Take a breath, and look into your business financials.

Like other start-up professionals across the globe, you’re probably grappling with the next round of funds. Or wondering how you can make better use of the funds you already have. And if you’re anything like Silicon Valley start-ups, the responsibility weighs down on you like a burden. But it doesn’t have to.

In accounting, when working between accounts payable and accounts receivable, errors are common. A lack of balance carries over into the basic financial statements. In recessionary times, it is costly to allow these errors. It’s time to take a cold, hard look at how working capital must be managed.

 

Key challenges

 

Are you grappling with key business financial questions?

  • Why are my customers not paying on time and are my vendors not giving me adequate credit?
  • While my sales system is doing fine with sales numbers why are they not able to collect on time?
  • Why do I hear about basic back-end issues because of the inability to collect in every collection review?
  • Why do vendors not get their payments on negotiated time when there is adequate cash in our bank? Where is the problem?
  • What is the priority on cash flow management, how should we determine that?

 

Accounts payable: Setting the right expectations

 

Set the right expectations

When you’re playing the role of the payer, negotiation needs to be legitimate, compliant, realistic, and flexible. Documenting these conditions in advance after having discussed them with vendors and partners is key.  Compliant bookkeeping is vital to the smooth running of a business.

 

Check cash flows

Make sure you have more than enough cash for everyday business before you commit to an expense. In case of late payments, it may be wise to contact them in advance. There must be clauses that support this in your contract and a good rapport with your vendors. Especially for a time like this, it’s crucial to have communicative partnerships.

 

Spend better, invest wiser

Having full-fledged business functional teams in-house is no longer the norm, especially with the budget slash. Consulting workforce, outsourced partners, and the gig economy are resources you can leverage to spend your capital better. This way you get to invest in both the financial health of your company and in synergistic expertise outside your organization.

 

Accounts receivable:

Get the billing right 

Customer acquisition, billing, and revenue recognition process. That’s the order. Often overlooked but of utmost importance is sending the right bill every time to the customer. Billing errors are a symptom of larger problems and need to be worked on a war footing.

 

Raise your field productivity 

In the absence of fieldwork automation, an enormous amount of field time is wasted while chasing collections or during recovery. The collection module on the IT platform needs to ensure field teamwork on high probable success cases. It must also provide a transparent view of customer issues to be addressed for collections to happen. With expensive field team deployment, it is imperative that they are directed well. Your IT product needs to provide for seamless working between tele-callers and the field consequently improving collection efficiency manifold.

Improve controls 

The collection system must be laden with controls to make sure recording, deposits, resolutions, and finally, customer interactions are managed well. The system features while should have controls in view, it also must take care of both customer interests and field efficiency.

 

Prioritize prevention over cure

You must have all the data. Customer billing information, KYC information, and payment record should help you to assess creditworthiness and set the right credit limits. Not doing this is fatal.

 

Redesign the process for sustainability

To make sure that you bill customers right, resolve issues, if any, before you reach out for collection, and finally ensure you reconcile collections. The process in regular periodicity needs to be re-evaluated and redesigned.

 

Healthy cash flows

Even after you’ve taken care of the fundamental systems for easy cash flows, you’ll still have a wide range of features inside your business that need consistent work and attention.

The benefits of healthy cash flows

  • You always have enough
  • You can pay your liabilities on time
  • It reinforces your brand
  • You have enough left to invest in important assets and business functions
  • You can prioritize exponential growth

 

Summing up

It may sound unbelievable, but balance sheets make for a fascinating read. Each transaction has a story, a plot, characters, and resources involved. It’s a lot like And as Richard Branson put it, “Never take your eyes off the cash flow because it’s the lifeblood of business.”

Accounts receivables and payables and cash flow management need regular checks, financial strategies, and discipline. The best way to do that is to hire the right experts and make sure your business is rigged for success.

The goal for healthy financials is a positive ratio between accounts receivable and accounts payable. Businesses and entrepreneurs who manage to maintain a regular inflow of earned assets and optimal handling of their obligations are more likely to hit their goals.




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