In 2020, the global pandemic hit countries all over the world, and the economic impact forced businesses to reevaluate their basic financial operations. When past due payments displayed harrowing growth, immediate adjustments in cash flow management became crucial.
Accounts receivable (AR) management is the process of ensuring that clients pay the money owed to businesses on time. If businesses are not receiving payments when they are due, it is likely that the slowdown in their cash flow will have a negative impact on their day-to-day operations.
According to the International Monetary Fund, 2020 global gross domestic product (GDP) decreased by an estimated 3.5% over the previous year. This is one clear indicator of a struggling economy, particularly in regards to cash flow. Sky-rocketing unemployment rates reached a shocking 14.8% in April 2020, as reported by the Congressional Research Service, so it should come as no surprise that many customers were forced to default on their payments.
Businesses had to find a solution, and they had to do it quickly. That solution took on a digital form, and technologies such as cloud computing, AI, and APIs were implemented to achieve a swifter transformation of receivables operations. With that came enhanced efficiency and insight into company cash flows, as well as a better relationship with receivables.
Leveraging technology to allow for multiple electronic payment options allows businesses to improve their cash flow during the COVID-19 crisis and beyond. PaymentsJournal had this to say: “If your business accepts electronic payments, customers can wait until the day the payment is due to make it. This method can help to improve cash flow for the business.” A variety of different payment options not only adds to the likelihood of repayment, but also provides a more positive customer experience.
Additionally, Days Sales Outstanding (DSO) can be brought down significantly with automated communications and collections. Using AI-driven software, businesses can send out consistent reminders to their customers about due dates and overdue payments. Along with email reminders, businesses can send text messages and phone calls. Making sure unpaid invoices are not ignored is a simple yet effective way to hold customers accountable.
In a new report from Mercator Advisory Group, “Businesses Need Receivables Automation to Keep Cash Flow Positive During Pandemic Recovery,” Steve Murphy, Director of Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group, takes a look at the developments in receivable management over the past year, as well as specific components of AR and technology trends impacting business owners in regards to their receivable management processes, systems, and strategies.