Making Accounts Receivable an Asset
A company's accounts receivable (AR) amount plays a pivotal role in sustaining its financial health. Maintaining and enhancing the value of these assets has become a challenge due to the inefficient invoicing processes commonly used.
It's a universal concern, and many businesses grapple with it, primarily when they interact with busy clients who—either intentionally or unintentionally—sideline invoice payments. This can often lead to current assets becoming bad debt, turning accounts receivable from an asset to a liability.
The Current State of Business Invoicing
It's a common question: Are accounts receivable considered an asset or liability? We're here to help you ensure it's an asset.
For many businesses, invoicing as parts of accounts receivable is a mundane task, often managed through outdated systems or manual means. This leads to a higher propensity for errors and delays in invoice creation and distribution, often leading to poor cash flow.
These traditional methods don't offer any convenience to customers, especially those juggling multiple roles and responsibilities. Add to this the likelihood of customers overlooking their due invoices thanks to their hectic schedules, and the accounts receivable situation can easily spiral into a mess during every reporting period.
Challenges in Accounts Receivable Management
Here we'll go over the challenges you might face with managing accounts receivable.
The Problem of Late Payments
When invoices are left unpaid or pushed to a future date for services delivered, businesses suffer from diminished cash flow, which can inhibit growth and innovation. Late payments not only strain business relationships but also translate into increased administrative and financial costs, with businesses turning unpaid receivables into either long-term assets or extending credit to non-deserving clients.
Also, when these issues compound over a period of time, they can seriously hamper the survival and success of businesses. This is particularly true for small and medium enterprises that rely heavily on consistent cash flow.
The 'Forgetful' Customer Dilemma
Busy clients may forget about their accounts payable amidst their numerous responsibilities. They may also delay payment due to questions regarding their invoice or services rendered. Often, they are too preoccupied to reach out for clarifications, leading to deferred payments.
This can result in unpaid invoice balances and in an unhealthy pile-up that can make accounts receivable count against the bottom line. This obviously isn't good for the business's financial health or relationship with clients as the allowance estimates grow, the amount of money clients owe goes up...and sometimes not for just a short period.
When a company's invoicing starts allowing bad debts, the company's AR—which represents money—can negatively impact the future economic benefits of all assets the company owns, including its workforce.
The Power of Communication in Accounts Receivable
Good communication can help overcome these issues by informing customers of their payment obligations. By actively reminding customers of their outstanding invoices, businesses can ensure timely payments. The effectiveness of communication cannot be overstated: Proactive, clear, and consistent customer communication can significantly reduce the risk of late or missed payments.
Introduction to Interactive Customer Invoicing
Interactive eCommerce invoicing emerges as an innovative solution to these challenges. It goes beyond traditional invoicing by facilitating active engagement between businesses and their customers. With an interactive self-service portal, such as the new Clarity Payment Hub receivable automation software, customers can be proactively notified, view, inquire about, and pay their invoices with ease and efficiency.
The goal here is to make the entire process seamless and effortless for the clients and partners while ensuring that businesses have a real-time and accurate view of their accounts receivable assets. Our clients, on average, are seeing a 43% increase in the speed of their payments, thus positively affecting their receivable turnover ratio.
Benefits of an Interactive, Self-Service Portal for Invoicing
Such a portal simplifies the invoice collection payments process for both businesses and clients. It reduces administrative burdens for most accounts receivable, fosters transparency, and lets customers pay their invoices at their convenience, making it that much more likely they'll make a prompt payment. With automation and interactive capabilities, the payment portal also removes the barriers that typically contribute to late or missed payments.
Enhancing Customer Awareness of Outstanding Invoices
Interactive invoicing portals send regular reminders to customers about their accounts, account balances, and account outstanding invoices. This not only keeps the customer aware of their debt but also prompts them to make payments faster. This improves the accounts receivable assets turnover ratio. These reminders can be customized and delivered through multiple channels, like email, SMS, or push notifications, further improving their effectiveness.
How Interactive Invoicing Facilitates Faster Payments
Interactive invoicing also supports multiple payment options, making it easier for customers to make payments. By providing businesses with an easy and convenient way to settle payments, interactive invoicing increases the likelihood of timely payments.
It also allows businesses to offer early payment incentives or flexible payment plans, such a case would be where businesses offer net-term discounts to their accounts, which can further motivate clients to pay promptly and avoid bad debts by turning an invoice into an asset.
Monitoring Payments Through the Accounts Payable Department
To further streamline the process, businesses can monitor transactions through their accounts payable department. This allows for better tracking of outstanding invoices and quick resolution of any discrepancies. By doing so, they can also identify any recurring issues or trends, such as particular clients who regularly delay payments, and take proactive measures to address those receivables.
Transforming Accounts Receivable into a Valuable Asset
By ensuring regular and prompt payments, businesses can transform their accounts receivable liabilities into accounts receivable assets. This aids in maintaining a healthy balance sheet and strengthens the company's financial position. It also boosts their credibility and reputation, which can have far-reaching benefits such as attracting new clients, partners, suppliers, or investors.
The Interactive Invoicing Process with Suppliers and Customers
Both suppliers and customers stand to benefit from an interactive invoicing process. It simplifies communication, fosters trust, and facilitates faster resolution of issues with receivables, leading to improved business relationships. It also fosters a sense of mutual respect and understanding, which is crucial for long-term, successful business relationships.
Company Success with Interactive Customer Invoicing
Clarity works with companies of all sizes in all industries. Since we focus on invoicing, custom quotes, and more, we end up with a large percentage of B2B accounts. Working with these B2B accounts that have successfully implemented interactive invoicing, we have clients who have reported a 60% reduction in late payments and a 30% increase in customer satisfaction.
These companies' stories underscore the potential of interactive invoicing and serve as an inspiration for businesses grappling with the challenges of traditional invoicing methods that are impacting their accounts receivable and balance sheets.
Implementing Interactive Invoicing in Your Business
To implement interactive invoicing in your business, you must first understand your customers' needs. Then, invest in an efficient, self-service invoicing portal and train your staff to manage and monitor it effectively. It's not a one-size-fits-all approach, so you must take the time to choose the right system and tailor it to fit your company's balance sheet and own unique business needs and objectives. Work with a vendor, like Clarity, which specializes in taking a robust platform and enhancing its capabilities to help improve and drive business.
Conclusion: Navigating the Future with Interactive Invoicing
In the modern business landscape, the importance of efficient invoicing and account receivable management cannot be overstated. Businesses that wish to maintain financial stability and cultivate strong customer relationships need to go beyond traditional invoicing and collection methods. Interactive customer invoicing, with its customer-centric approach and convenience, presents itself as the perfect solution to these challenges.
By implementing interactive invoicing in your business, you can empower your customers with the ability to view, question, and pay their accounts receivable and invoices with ease, thus enforcing the "accounts receivable is a long-term asset" approach to accounting instead of it being a liability. Regular reminders about outstanding invoices can be automatically sent, nudging customers toward making payments on time. In doing so, your accounts receivable is an asset account that becomes a valuable asset that brings consistency to your cash flow and strengthens your company owes financial standing.