02.02.2021 | Posted by Erik
Is Your Accounts Receivable Management Cutting into Your Profits?
Accounts receivable management is a necessary part of running any business. But things can get out of hand pretty quickly when you aren’t actively managing and collecting your receivables. It can even start to affect your profitability.
Let’s look at some of the ways A/R oversight can negatively impact your long-term profit goals.
5 Ways Poor Accounts Receivable Management Cuts into Profits
When a company doesn’t have sufficient oversight into their accounts receivable management, they’re often rendering services or shipping product even though they haven’t been paid. Money starts stretching, and before they know it, their customer has gone months without paying.
The longer a customer goes without paying, the less likely it is the company will get paid. This is just one example of the drastic impact that poor accounts receivable management can have on an organization’s profit margins.
Here are five ways we see poor A/R management hurt our clients’ profitability.
1. Money in Past Dues Isn’t Money You Can Use for Growth
If all your excess capital is locked in unpaid invoices, you won’t have any money to spend to actually grow your business. Past due invoices don’t just impact cash-on-hand, but they also prohibit you from investing in activities that could boost profit, like marketing campaigns, events, or sales efforts.
2. Long Turn Times Increase the Chance of Non-Payment
If you don’t collect your invoices on time, the percentage of invoices you’ll collect is reduced. In fact, studies show that once an invoice hits 90 days past due, there’s only an 18% chance that it will ever be paid.
If a business is struggling to pay invoices, they’re probably also struggling to keep the doors open. The longer it takes to get an invoice paid, the higher the chances are that the customer’s company goes out of business. And we all know that if you aren’t getting paid, your profits will substantially reduce.
3. Increasing Interest Reduces Profit
When you’re borrowing against your receivables, that means you’re going to pay some interest. The longer it takes for people to pay up, the more interest you’ll pay. These interest fees eat into your profit margins and hurt your business in the long run.
4. Time on Collections Is Time Not Spent Generating Revenue
Your in-house team won’t have as much time for their actual jobs if they’re focused on accounts receivable management. If employees aren’t able to spend their time on a revenue-generating activity, your long-term profit will be affected.
5. In-House A/R is Costly
If you’re handling your A/R in house, you’re likely spending more money than you would be if it were outsourced. You’re paying your employees their salaries (plus benefits) to make collection calls and try to get invoices paid. Outsourced accounts receivable management companies can cost significantly less, resulting in bigger profit margins for you.
Boost Profits with an Outsourced A/R Management Company
Accounts receivable management is a lot of work, and it often takes a specific set of skills, tools, and knowledge to be effective.
So many companies make the mistake of continuing to ship products and render services without payment. They keep moving forward until a customer is 30, 60, or even 90 days past due – usually because they don’t realize until it gets to that point.
This is the equivalent of throwing money out the window until it’s too late to receive payment. By failing to stay on top of invoices, businesses suffer credit losses, and these losses affect the margins across the entire company.
It’s important to get in front of problems and cut clients off when they’re past due. Axim helps our customers get the insight and oversight they need to avoid these types of issues. We help our clients be more proactive to improve profitability by effectively managing their accounts receivables using a professional, customer service approach.
We’re so effective that we had a client use us for three months, and we were able to collect enough past-due invoices for him to take a three-week-long vacation. Let’s just say that vacation was well deserved!