Transforming your finance processes doesn’t need to take months or years. But to achieve rapid results, you need a plan. There are five steps you need to undertake to improve your finance efficiencies, deliver a better customer experience and bring in more money – faster.
Here’s step 1.
1. Assess your current state
Charting your path for the future starts with understanding where you are now. Here are six questions that will help you identify inefficiencies in your current AR process and learn how they are impacting your cash flow.
- How many employees are involved with your collections processes?
In addition to full-time collections staff, be sure to count other employees who follow up on late payments. Do you hire interns at year-end? Do your salespeople take time away from deals because they need to collect payments in order to get their commission checks, and what about your customer service team?
- How much time does AR spend on inefficient tasks?
You might be surprised by how many hours disappear into your AR black hole. Consider how often your team resends invoices to customers – along with the time they spend searching for, scanning, mailing, or emailing supporting documents. Multiply those minutes by the thousands of invoices and files each month that are resent, and the waste quickly adds up. Plus, with so many tedious tasks, your AR employees may have little time to actually engage customers.
- How much does paper mailing cost you each month?
As discussed earlier, a single paper invoice can cost $11.50 to process. How much do you spend each month on the following items?
- Paper for invoices and supporting documentation
- Envelope stuffing
- Re-mailing invoices to customers who don’t pay on time
- Re-mailing invoices to customers who moved, made changes or didn’t receive the initial invoice
Consider the percentage of paper invoices that you send each month and factor it by the number of customers you anticipate will switch to e-payments. This will show you how much you can save when you reduce your reliance on paper.
- What is your DSO costing you?
Here’s a quick calculation to help you determine your DSO costs:
DSO = (Receivables/Amount of credit sales) x 365
Cost of 1 day of DSO = (Total sales x cost of capital) / 365
Assuming you have $1 billion in sales, $100 million in receivables, and a blended cost of capital of 8%, you have:
DSO = ($100M/$1B) x 365 = 36.5 days
Cost per DSO day = ($1B x 8%)/365 = $219,178
Do your margins allow you to leave your DSO unmanaged given that a savings of $200,000+ can be realized for each day that the DSO is reduced (based on the financials contained in this example). Plug in your company’s metrics and quickly calculate the savings you could realize.
- Are you factoring your invoices?
Do you sell your receivables at a reduced cost when you need to get money in now? If so, how much cash are you losing with every invoice? What would your cash flow and margins look like if a third party wasn’t taking a cut?
- What technology does your AR team use?
How do you currently process invoices? Do you have a legacy payment portal or invoice presentment tool? What is the cost to update those tools? As your company grows, how easy will it be to scale your systems to manage a larger number of accounts?
Your AR systems and processes likely cost more than you think. You’re not just paying for technology, paper, and postage. When your processes are inefficient, you harm your cash flow.
In the next blog in this series, we discuss the next step in transforming your accounting processes – assembling the right team. Click here to read.
To learn more about how to transform your accounting and finance processes, grab a copy of our guide.