Financial Stability: Learn How Automation Builds Better Balance Sheets

Shaun Jex

Managing your business’s finances can be a bit like playing a game of Jenga, always worrying that if you move the wrong piece the tower will topple. 

Fortunately, balance sheets are there to help you play better, providing you with a clear view of your financial position at a given point in time. 

Accounts receivable is a vital part of the balance sheet, detailing the amount of money you are owed by customers. However, it’s important to view AR in context. While it is considered an asset, the document doesn’t differentiate between money currently in your possession and what you are yet to receive. Until customers pay their invoices, those funds are essentially locked up. Automating the collection process can help ensure that you are converting that balance into cash.

Listening to the Ratio 

Ensuring that your business has optimized its ART ratio is a key step to improving balance sheets. Calculating the number will provide an idea of how effectively you are currently collecting. It’s a simple two-step process:

  1. Beginning AR + Ending AR/2 = Net Accounts Receivable
  2. Net Credit Sales/Net AR = ART Ratio

In general, a higher number indicates a more efficient process or a more conservative policy. To give the statistical context, it helps to compare it with similar time periods in the past, as well as the performance of businesses similar to yours–information which can be found through organizations like the National Association of Credit Management, the Credit Research Foundation, or through industry peer groups.

Once you know your ART ratio, the following tips can help you get the most out of your accounts receivable, ensuring better balance sheets as a result.

Don’t Forget to Write

Customers are busy, and when something isn’t kept top of mind, it is easy for it to be forgotten about. That’s why 60% of invoices are paid late.

According to Deloitte, one of the most common mistakes made in AR is a failure to regularly follow up on past due invoices in a timely manner.

An automation solution like YayPay allows you to easily schedule regular email reminders from the time an invoice is delivered until it is paid. The cadences are customizable, so you can tailor messages to specific audience segments.  

Accuracy is Everything

Another common barrier to AR success is bad data or errors that lead to disputes and late payments. It’s easy to enter the wrong dollar amount or calculate taxes incorrectly if you are handling the process manually and working between multiple systems like spreadsheets and an ERP.

YayPay integrates with your other solutions and reduces the risk of mistakes in the data entry process. Better data means faster payments, freeing the money on your balance sheet.

Risky Business? Not Anymore!

Most sales representatives will do whatever it takes to land those hard-to-get customers. However, if they aren’t able to communicate with your AR department easily, that very motivation can lead to problems. Without information such as past payment behaviors, your sales team may override credit limits in high-risk situations that lead to unpaid invoices.

While your balance sheet may account for some of this by estimating bad debt, you can minimize the potential impact through automation. The internal transparency afforded allows your sales reps to see which customers are worth aggressive offers, and which deserve a moderate approach. 

The future of your business shouldn’t feel dicey. Automation gives you the stability and tools you need to maintain your financial footing. To learn more about how solutions like YayPay can keep you feeling rock steady, visit our blog and sign up to be notified of more posts like this.