Effective accounts receivable (A/R) management is crucial for a business's financial health and stability. It helps with many things, from cash flow optimization to minimizing bad debt and credit risks. It also improves customer Relationships.
Little wonder that Ladipo Lawani had this to say after using us for 5 months.
“Bridger gives us a helicopter view of accounts receivable across our operating companies. They are adding valuable new features all the time and we make a lot of key business decisions with the platform”
But how does it do this, you ask?
It gives your business the necessary expertise, efficiency, and scalability to optimize accounts receivable management. By leveraging these services, you can enhance cash flow, reduce credit risks, improve customer relationships, and achieve greater operational efficiency business-wise.
So if you’re curious about how X did this in X months, this guide is for you. You’ll learn all about account receivable management, maximizing cash flow for your business, and boosting financial performance.
Let’s journey together.
Accounts Receivable (A/R) refers to the money owed to a company by its customers for the sale of goods or services on credit. It represents the short-term credit extended to customers and is considered an asset on the company's balance sheet.
The components of A/R include:
1. Invoices: The documentation provided to customers detailing the amount owed, payment terms, and due dates
2. Payment Terms: The agreed-upon terms for the customer to pay the outstanding balance, such as net 30 days or 60 days.
3. Customer Balances: The individual amounts owed by each customer, which can vary based on sales volume, credit limits, and payment history.
Monitoring and managing A/R effectively involves tracking various metrics and performance indicators, including:
1. Days Sales Outstanding (DSO): Calculates the average number of days it takes for a company to collect payment after a sale. A lower DSO indicates faster cash flow.
2. A/R Turnover Ratio: Measures the number of times A/R is collected and replaced within a specific period. A higher ratio indicates efficient collection.
3. Aging Schedule: Segments A/R based on the number of days outstanding to identify overdue or delinquent accounts.
4. Bad Debt Expense: This represents the estimated amount of uncollectible accounts, which affects the accuracy of financial statements and profitability.
5. Collection Effectiveness Index (CEI): Measures the effectiveness of the collection process, usually as a percentage. A higher CEI indicates better collection performance.
Traditional A/R management can present several challenges for businesses, including:
1. Delayed Payments: Customers may delay payments, leading to cash flow constraints and affecting their ability to meet financial obligations.
2. Inefficient Collection Processes: Manual or outdated collection processes can result in delays, errors, and increased administrative costs.
3. Disputes and Discrepancies: Inaccurate invoices, pricing disputes, or delivery issues can lead to payment delays or disputes that require resolution.
4. Credit Risk and Bad Debt: Extending credit to customers carries the risk of non-payment or default, potentially resulting in bad debt write-offs.
5. Lack of Visibility and Reporting: Inadequate systems and processes may hinder real-time visibility into A/R balances, aging, and collection performance.
Managed A/R services offer various benefits in streamlining the collections process, including:
Managed A/R services can significantly impact cash flow and working capital management by:
Managed A/R services can have a positive impact on financial performance and profitability through:
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Understand the provider's pricing model, including any setup fees, transaction fees, or commission-based charges, and ensure it aligns with your budget and expected ROI. Factors to Consider When Selecting a Provider:
Ensure the provider has robust data security measures, adheres to relevant compliance regulations, and protects sensitive customer and financial information.
Assess the provider's ability to scale their services based on your business growth and their flexibility to accommodate any changing needs or requirements.
Review the SLAs offered by the provider, including response times, resolution of disputes, and reporting frequency.1. Reputation and Experience: Research the provider's reputation, industry standing, and client testimonials to gauge their credibility and reliability.
At Bridger, we offer comprehensive managed A/R services designed to optimize the collections process and improve cash flow management for you. Our services include:
1. End-to-End A/R Management: We handle the entire A/R process for your business. From generating invoices and sending payment reminders to tracking and reconciling customer payments. We make the
experience seamless.
2. Credit Assessment and Risk Management: Bridger conducts thorough credit assessments to mitigate risk, set appropriate credit limits, and ensure customers' creditworthiness.
3. Customer Communication: We maintain regular and proactive communication with customers to address inquiries, resolve disputes, and provide timely payment reminders.
4. Dispute Resolution: Employing tailored strategies and expert negotiation to resolve disputes and delinquent accounts is key for us. This reduces payment delays and improves collections.
5. Cash Application and Reconciliation: Bridger streamlines the cash application process, ensuring accurate and timely allocation of customer payments and seamless reconciliation.
6. Real-time Reporting: Our reporting tools are top-notch. We provide real-time visibility into A/R performance, aging schedules, collection effectiveness, and customer payment trends.
7. Key Performance Indicators (KPIs): Bridger tracks and analyzes key metrics such as DSO, A/R turnover, and CEI to measure and monitor A/R performance.
8. Data Analytics: We utilize data analytics to identify trends, forecast cash flow, and optimize credit management strategies. This helps us give you suggestions on how best to manage your cash flow.
9. Online Customer Portals: Bridger provides online portals where customers can view invoices, make payments, and access account information, enhancing self-service capabilities.
Yvonne Tom says, “Bridger allows us manage our receivables and nurture positive client relationships – building deeper customer relationships and improving cash flow.”
Some potential applications include
Blockchain technology offers enhanced security, transparency, and trust in financial transactions. In managed A/R services, blockchain can be leveraged to:
Predictive analytics and advanced forecasting techniques can provide valuable insights into future cash flow, customer payment behavior, and A/R performance. Some potential applications include:
Managed A/R services offer expertise in credit analysis, collections, and dispute resolution, efficiently improving cash flow. They provide scalability and cost savings and allow businesses to focus on core competencies.
At Bridger, we are committed to delivering excellence in accounts receivable management. Our expertise in A/R processes, industry knowledge, and advanced technology enable us to provide tailored solutions that meet your business needs. We're the best for you, from ensuring your data is safe to efficient collections and dispute resolutions.
Partnering with Bridger can transform your A/R management, enhance your cash flow, and allow you to focus on your core business.