Business growth doesn’t just happen and it doesn’t just happen for free. Company growth requires a significant investment of time, effort, and money when you consider all the things that factor into next-level business. For example, hiring new employees, expanding operations, buying more equipment, etc. Growth is also risky, You don’t want to grow your business straight into the ground by growing too quickly without a plan to access the cash you need to support it.
How are businesses defining growth? How are they attaining it? And what can you do to support growth with positive cash flow? A recent study be E-media found that businesses define growth in a variety of ways:
- Increased revenue 36%
- New product lines 36%
- Mergers and acquisitions 33%
- New locations 24%
- Global expansion 21%
- More full time employees 19%
The study also looked into how businesses go about attaining that growth and found the most common strategies to include:
- Strategic partnerships 64%
- New marketing initiatives 61%
- Mergers and acquisitions 50%
- Research and development 41%
- Moving into emerging markets 25%
No matter how you define growth or what strategies you use to attain it, there is one thing every business needs to reach their growth goals– cash flow!
As mentioned previously, you need to make a lot of investments when you grow to cover rising overhead and capital investments, but money just doesn’t grow on trees. So how can you access the cash you need to not only cover your costs as they are today, but even more to reinvest into growth initiatives?
While selling more is usually the first thing that pops into your head, bringing on more customers and increasing sales may not be the answer if you sell on credit terms. Why? Because according to CFO Research, only 27% of companies collect 90% or more of their total yearly sales within payment terms! that means that the remaining 73% struggle with timely credit and collections which translates to slow cash flow and insufficient working capital. If you have a hard time getting paid within terms, here are 6 ways to turn things around in you’re A/R department and resources to help you make it happen.
Improving debt collections procedures: For many companies, efficiencies and effectiveness is what makes the difference in how quickly they are able to collect outstanding accounts receivable and there are some simple ways to improve those areas. Here are 17 things you should be doing right now to reduce outstanding A/R.
Run credit checks on all customers before extending a line of credit: By ensuring that the customers you extend credit to are in good financial standing can reduce late payments, disputes, and bad debt write-offs considerably. Selling to customers on credit is always risky, but there are ways to manage that risk, for example:
- Require customers, both new and existing, to fill out credit applications any time they ask for credit terms. Be sure your application requests references and you follow up with them. Feel free to use this credit application template!
- Follow these proven best practices to business credit management.
Adhere to policies and procedures while setting credit limits: If you do not have a credit and collection policy it’s strongly recommended that you write one up. It can be as short or as in depth as you’d like but if written and used strategically, a credit and collection policy can become an invaluable tool for your sales and credit management teams. Learn how to write an effective policy in our 6 step guide.
Work as a team: Building an effective accounts receivable management team is not easy, there is a lot to think about. For example, you want the right number of people focused on A/R to get results, but you do not want to increase overhead unnecessarily either. If you’re wondering how many people you should have focused on collecting invoices, this staffing guide is for you. Another thing to think about is how your credit managers and collectors can (and should) work with the sales team. Why? because you can reduce credit risk when sales and A/R work together.
Automate processes: There is a lot to do in the accounts receivable department if you want to increase cash flow; like sending weekly or monthly statements, following up on issued invoices, tracking broken promises, settling disputes, and much more. If you’re doing this all manually with aging reports, spreadsheets, and your accounting system then you are working harder, not smarter. With an accounts receivable management software system, you can ensure all of your A/R activities are scheduled, monitored, recorded, controlled and measured. Learn more in this article, “8 ways A/R automation software helps you do your job better.”
Track and measure your Days Sales Outstanding (DSO): This will help you figure out how long it takes you to get paid after an invoice is issued so you can make adjustments to credit terms, and can serve as a success metric. It is possible to track and calculate this manually, but a dashboard for accounts receivable management can make this process much more accurate, efficient, and provides even more insight into critical A/R performance data.
Learn more tactics for increasing cash flow & discover new tools in our Resource Center, click below to enter.