Make Your Working Capital Work for You: Ways to Optimise Your Accounts Receivable

Make Your Working Capital Work for You: Ways to Optimise Your Accounts Receivable

Accounts receivables are one of the most important components of your working capital. Receivables refer to the money which you must receive from your debtors, i.e., the people you sell your products or services to. When you get your payments on time, your working capital remains in good health.

But many people struggle to take control of their receivables process. When this happens, increasing cashflow becomes difficult and it becomes challenging to run your business operations.

Here we explore what you can do to ensure your accounts receivables practices work well and you optimize your collections.

Step 1: Make accounts receivables a key metric in financial performance measurement

Many times, working capital takes a backseat when we’re measuring company profitability and financial health. Typically, the section which companies falter with is the accounts receivables. When you don’t keep an eye on your receivables, it becomes difficult to identify any existing problems with our receivables process.

But, when you make your accounts receivables a KPI, you strictly track your receivables and you get a better picture about who owes you what. You’ll be able to identify customer accounts that are draining your coffers and amend those processes that are harmful to your working capital health.

Step 2: Bring your departments together to ensure a collaborative collection effort

Accounts receivables management isn’t just the prerogative of your company’s accounts department.

The sales team, which deals with clients on-the-ground, plays a huge role in getting collections faster. Additionally, your finance teams – who control budget allocations – affect the company’s ability to offer extended credit periods and limits to customers.

When your sales, accounts and finance departments work together, you will have a bird’s eye view of your accounts receivable management processes. You will be able to determine the exact payment terms and credit limits to be offered to each customer, to ensure you’re always repaid and have the lowest default rate.

One process to initiate here is a comprehensive credit check to gain credit insights about current and prospective customers. This credit check will give you information about the purchase and repayment history of your customers, whether there were any defaults and the frequency of on-time payment vs default. This way, you’ll be able to plan how to reduce your default rates and ensure you receive your payments and your working capital is optimized.

Step 3: Use a robust Accounts Receivables Solution to collate bills of the same customer

It’s easy to miss out on a specific invoice when the same customer has a hundred different bills. This is where Accounts Receivables Solutions like accounting software, order management software and a master excel sheet can help. They give you the means to bring together data that is completely staggered in your system and make sense of the overall receivables each customer owes you.

When you have this collated information in a single place, there’s a lesser likelihood of your missing any bills that need to be followed up. Plus, this will help you identify any wrongdoing that any customer might be doing to cheat the system.

Step 4: Automate your receivables to ensure you always get paid on time

Finally, the best way to optimize your working capital and get your payments is by automating accounts receivables.

Manual receivables management can lead to a lot of errors. You may either claim lesser than what is owed to you or accidentally include wrong invoice details that can reduce your credibility in front of your customers.

But software like MYOB, XERO & Netsuite can help you manage your invoices carefully. These tools also take control of the payment follow-up process, ensuring you don’t need to do the heavy lifting. Contact our team at ezyCollect for more information.

A CFO’s Guide To Business During The Pandemic

A CFO’s Guide To Business During The Pandemic

The global pandemic has forced nationwide lockdowns and has brought the global economy under distress. Countries were forced to take unprecedented measures to slow down the spread of the contagion. Likewise, organizations had to resort to quick action to protect their customers, finances, suppliers, and employees.

McKinsey, the US-based management consulting firm, surveyed 1592 respondents across a range of companies and industries globally. The survey was conducted between 2 – 6 March 2020. 84% of those surveyed viewed the pandemic as a threat to the global economy. Several companies lost 75% of their annual profits in the first quarter of this year. Others had no other choice but to reduce costs by laying off staff and encouraging the remaining ones to work from home.

In such chaotic situations, the role of the CFO (Chief Financial Officer) is of critical importance. In the last few years, the role of the CFO has expanded a great deal. They are now looking beyond finance, accounting, and compliance, and are taking on bigger responsibilities such as strategic planning, business transformation, and company investments. CFOs are vital to the financial health of the organization and can help it tide over the current economic crisis caused by the unprecedented challenges we face in a world disrupted by the effects of the pandemic.

As per McKinsey, CFOs should take action on three fronts – immediate survival, stabilizing the business during the crisis, and guiding the recovery of the company once the situation has stabilised.

Here’s how a CFO could help their organization recover from the financial crisis caused by the pandemic:

Immediate survival of the business

The global pandemic has forced many companies to shut down, some temporarily and some permanently. The restricted cash flow has taken away the freedom from most customers to make discretionary purchases, and supply chains have been disrupted. The entire world has been in the grips of the pandemic and it is difficult to fathom the magnitude of the current crisis. It is thus necessary to optimize the cash reserve of the company for surviving these trying times. 

A CFO would ideally take the following short term steps to ensure the immediate survival of their business during these difficult times:

  • Assess the current financial situation

Successful leaders do three things effectively – have their priorities right, work with the right people, and maintain the right relationships to get results. Taking stock of the current financial situation may help CFOs prioritize and further plan their strategies.  To keep the business afloat, they would need to pay special heed to the cash flow as well as get their hands on any capital they can access. The current situation is stressful for many, which could likely increase the number of defaulters. Collecting payment from defaulting customers should be a priority as that could help improve the financial situation of the company. CFOs may consider other options too, like a line of credit or raising capital through joint ventures or divestments when the working capital is insufficient. They may also want to seek relief on debt covenants to consolidate the balance sheet. The current situation demands the real-time tracking of liquidity.

  • Plan for different scenarios

The global pandemic has forced many innovation plans to go on the backburner and CFOs have had to take on more strategic roles. The impact of the pandemic has been different for different locations in different geographies. CFOs now have to keep track of the impact in different locations and strategize accordingly. They could form a small task force within the business that could monitor the current conditions so that business decisions can be made accordingly. The pandemic could give rise to a range of scenarios and a CFO may need to take financial decisions accordingly. Every financial decision taken in real-time could have a profound effect on the future of the company.

  • Set up a communication plan

The company’s primary focus during the pandemic is to preserve cash and use it carefully. It is, thus, important to keep the board of directors and investors abreast of the situations. Proactive communication on the part of the CFO can keep important stakeholders aware of the current situation and its effect on the company. Setting up a robust and detailed communication plan may also be necessary to keep the stakeholders aware of the liquidity situation and the steps taken to protect the business. A strong communication plan helps maintain the confidence of investors and other stakeholders regarding fast and resolute action taken as per the situation.

Stabilize the business

In the current situation, robust and effective planning is necessary to stabilize the company and ensure it continues to operate effectively. Making operational improvements, strengthening productivity, and reassessing the investment portfolio may be essential to stabilize and keep the company running optimally.

The CFO can help stabilize the business by:

  • Supporting productivity

To tackle the current situation, robust planning is necessary to support and improve productivity once the situation is back to normal. Along with the finance department, operational measures need to be put in place to support performance improvement. The CFO may encourage the development of newer products or services that help customers in need to bolster their loyalty and, in turn, increase revenue and the lifetime value of their customers. For instance, many companies are now utilizing alternative sales and delivery channels, including fast tracking their eCommerce plays and leveraging digital and technology channels.

  • Reassessing investments

In times of financial crisis, it becomes imperative to delve deep into the company balance sheet. Inventory reduction, refinancing of outstanding credit, accounts receivables and payables are aspects that demand special attention. A balance sheet cleanup can make the company more financially flexible while being focused on key metrics. CFOs play a vital role in optimizing the company’s investment portfolio by reviewing R&D and IT allocations. In some situations, it may be necessary to revisit the initial projected return on investments as it is most likely to change in the current situation. Higher-yielding projects or projects with shorter road maps to deployment may be given more attention, and more financial and human resources may be diverted to them.

  • Financial planning & analysis

The current economic situation requires the finance team to quicken its pace of forecasting and budgeting. The pandemic has not just affected the health and well-being of people globally but also the financial well-being of many companies. It is vital that the CFO receives updated business information so that he and the finance team can incorporate it into an integrated forecast. Collaborative tools may be used to manage and monitor key performance indicators. A real-time dashboard is also a good idea as it can help business leaders focus on the key metrics that can guide the organization’s operations in the coming months.

Post-pandemic business recovery

As the pandemic situation subsides, CFO are shifting their focus to helping the company recover. While the pre-recovery situation is a fight for survival, the post-pandemic scenario requires a plan for growth. Investment plans to diversify the company’s portfolio and implementing significant productivity measures can help the company grow after the pandemic is over.

To help the company recover, the CFO needs to take the following steps:

  • Be prepared for transformation

A crisis could often be an appropriate time to rethink or redesign parts of the business. Transformation may be the keyword here, as that’s what businesses would need to do in the post-pandemic world – transform. Business transformation may need adjustment of productivity targets and re-evaluation of performance metrics. CFOs are vital for business transformation and should review the entire company portfolio with a focus on helping each business unit reach its full potential. Transformational plans could significantly boost revenues or cut down costs helping the business recover and thrive.

  • Consider ways to improve company portfolio

During an economic crisis, uncertainty and decreasing valuations of companies could give rise to an optimal environment for mergers and acquisitions. The CFO may want to assess if mergers and acquisitions, or other avenues like strategic partnerships or SBU divestments that may provide a pathway to improve the company’s portfolio. History shows that resilient companies divested 1.5 times more than their non-resilient peers.  Product, geography, or supply-chain acquisitions could hold a lot of promise during these troubling times. A strategic approach to mergers and acquisitions could improve a company’s portfolio.

  • Embrace digitization

During this pandemic, a huge chunk of the global workforce is working remotely to contain the spread of the pandemic. Working from home has never been so popular as it is now. More and more companies are looking for ways and means to improve the productivity of their staff working from home. CFOs may want to continue to support digitization as it can positively impact the finances of the company even after this crisis is over. Digital initiatives, like automation of various processes, and real-time forecasts, are critical for running the business smoothly. Embracing digitization will ensure informed decision-making, accurate reporting, and business continuity in the event of any future crisis.

The global pandemic has disrupted the global supply chain and has significantly impacted the return on investment almost overnight. The focus has shifted from efficiency to accounting for stability and resilience. CFOs need to shift their attention on digitizing and automating core business processes to minimize their exposure to external shocks and create resilience.

Preparing for business re-opening after the closures

Many countries have now slowly begun to relax their lockdown directives and are supporting the re-opening of businesses. The CFO plays a significant role in the re-opening and needs to take steps to resume operations while keeping the trust and confidence among the customers intact.

As economies begin to reopen and return to a semblance of the pre-covid normalcy the need to plan for tactical and strategic initiatives that are responsive to customers’ needs and behaviours is critical. The CFO plays a significant role in the re-opening and needs to take steps to resume operations while keeping the trust and confidence among the customers intact. He can be instrumental in taking steps and precautions in making the workplace safe for both employees and customers.

Some of the necessary steps could be:

  • Transitioning the workplace according to social distancing guidelines. It may involve simple steps like changing the layout of the office or installing barriers between desks.
  • The CFO, along with the concerned teams, may allocate funds to create a wellness plan to monitor employee health.
  • To limit the spread of the virus and safeguard the health of the employees, the CFO may instruct the concerned departments to resort to cashless methods. Special emphasis is needed in the handling and storage of physical items.
  • The CFO may also need to clearly communicate the details of the wellness plan and the precautionary measures taken by the company to the employees. It is important for the staff to understand their role in mitigating health risks.

Conclusion:

In these uncertain times, communication is vital. As much as it is important to have clear and frequent communications with key stakeholders, it is also crucial to have a line of communication open with employees. Business leaders must demonstrate empathy in these times as employees struggle with anxiety about their health and future. 

CFOs can play a fundamental role in keeping the morale high of employees. Regular communication is essential wherein the CFO apprises the employees of the company regarding actions and plans to tackle the crisis. Effective communication dispels rumors, reduces distractions among employees, and keeps them motivated. CFOs need to consider the best case as well as the worst-case scenarios in mind when formulating strategies. No one knows how this global crisis will pan out; hence, they need to consider all situations keeping their stakeholders, suppliers, customers, and employees in mind.

New feature: Extra working capital for financing cashflow

New feature: Extra working capital for financing cashflow

Even healthy businesses can experience a cashflow gap at times—that period of time when cash incomings are not enough to meet the demands of cash outgoings. Financing cashflow is a constant juggle. A temporary cashflow gap shouldn’t become a major barrier to business as usual. That’s why ezyCollect has integrated a new feature, Cash Flow Advance, to support healthy businesses to keep growing.


Your financial controller will often anticipate cashflow gaps. Planned capital expenditures, predictable seasonal lows or large upfront payments will predictably decrease the amount of cash available as working capital.

At other times, cashflow impediments can appear swiftly to derail business. Late payments, slow-moving inventory and disputed invoices could mean that your cash is locked away indefinitely. Still, with a back-up plan, financing cashflow shouldn’t be stressful.

ezyCollect’s cashflow boost for healthy businesses

In the ezyCollect app, approved users—companies using ezyCollect to streamline accounts receivable—will be able to apply online for an unsecured line of credit via our finance partner.

Up to AU$20,000 will be available to users pre-approved by
ezyCollect. Pre-approval is based on the positive health of a company’s
accounts receivable ledger over the previous six months as assessed in
ezyCollect, plus a free credit check by the finance provider.

ezyCollect’s CEO Aj Singh is determined to support businesses to keep thriving. “A cashflow advance, exactly when you need it, can help to keep your good momentum going,” says AJ.

cash flow advance-1

Pre-approved ezyCollect users can apply for a cash advance in-app


Fast-tracked funds for immediate use

Because the pre-approval is done for you, any company that chooses the finance offer will receive their funds within 24 hours.

ezyCollect’s pre-approval process takes away the time a business
would otherwise have to spend on gathering and presenting their
financial records.

“In conjunction with our financial services partners, we want to take away the friction that worthy businesses experience when they want to apply for a line of credit. Their data is there; they have already proven their credit worthiness,” says AJ.

“…we want to take away the friction that worthy businesses experience when they want to apply for a line of credit.” AJ Singh, CEO ezyCollect

 

Being able to access cash on demand means that your business can take advantage of great opportunities to save money:

  • Buy in bulk for volume discounts
  • Access early bird discounts for a cheaper price
  • Pay with cash to avoid high interest rates on credit cards
  • Pay suppliers on time and avoid late payment fees

Transparent fees with no hidden costs

As with any financial product, businesses should independently assess
the fees and tax implications of ezyCollect’s cash advance offer.

As an example, a $10,000 cash advance in ezyCollect incurs the following 4-month repayment schedule*:

  • $150 activation fee (Deducted from loan so no upfront costs)
  • Service fee of $100 per month throughout the life of the loan (1% fee per month)
  • 4 equal instalments deducted monthly

You can repay early at any time for no additional cost.
(*current as at August 2019)

In summary:

  • Pre-approved ezyCollect customers can apply in-app for up to $20,000 as an unsecured line of credit.
  • Funds are available within 24 hours.
  • Repayments are undertaken with the finance provider.

To see how ezyCollect can streamline your AR process, request a demo today:

 


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