{"id":28202,"date":"2021-03-26T12:38:57","date_gmt":"2021-03-26T07:08:57","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=28202"},"modified":"2021-03-26T12:38:59","modified_gmt":"2021-03-26T07:08:59","slug":"working-capital-optimization-of-accounts-receivable","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/working-capital-optimization-of-accounts-receivable\/","title":{"rendered":"What are the Best Practices for Working Capital Optimization of Accounts Receivable?"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Regardless of the business structure, it is essential to have a productive accounts receivable strategy in place to optimize cash flow. No business can carry its operations until it has optimal Working capital , and this is only feasible when the accounts receivable process is twisted as per the company&#8217;s situation.<\/p>\n\n\n\n<p>However, various\nentrepreneurs and business owners overlook its significance entirely &amp; put\nin little effort to accumulate payments from multiple sources. One of the\nsignificant errors made by most of the owners is in the form of an unplanned\napproach towards the AR process, resulting in unhappy clients &amp; delayed\npayments and the minimal use of the working capital.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/working-capital-optimization-of-accounts-receivable\/#What_Makes_Optimization_of_Accounts_Receivable_Vital\" >What Makes Optimization of Accounts Receivable Vital?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/working-capital-optimization-of-accounts-receivable\/#What_are_the_Possible_Hindrances_Related_to_AR_in_Working_Capital\" >What are the Possible Hindrances Related to AR in Working\nCapital?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/working-capital-optimization-of-accounts-receivable\/#What_are_the_Best_Tips_to_Improve_Account_Receivable_Working_Capital\" >What are the Best Tips to Improve Account Receivable &amp;\nWorking Capital?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/working-capital-optimization-of-accounts-receivable\/#Conclusion\" >Conclusion&nbsp;<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Makes_Optimization_of_Accounts_Receivable_Vital\"><\/span>What Makes Optimization of Accounts Receivable Vital?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The advantages of\nstreamlining the AR process may take ample time to come into existence, but\nmany other attributes gain promptly. This can be witnessed in the form of\nincreased liquidity by safeguarding existing capital from potential wastage. In\naddition to that, the business can operate more seamlessly with increased capital\nand reduced debt in hand.<\/p>\n\n\n\n<p>When it comes to\nstreamlining AR processes, you need to get started as soon as possible without\nincurring any delay. This includes sharing payment policies with the client\nduring the initial stage itself. A productive approach toward this can be taken\nby establishing an electronic payment mode for a new client coming in.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Possible_Hindrances_Related_to_AR_in_Working_Capital\"><\/span>What are the Possible Hindrances Related to AR in Working\nCapital?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Ordinary <a href=\"https:\/\/corpbiz.io\/accounts-receivable-services\"><strong>Account Receivable<\/strong><\/a> practices create countless loopholes for businesses, including extending credit to clients who are already on the payment defaulter list, ignoring the accuracy of invoices and bills, generating and leveraging financial reports, and more. Also, contributing more time to resolve false invoices and paying less attention to the core areas such as accounting and finance team making them unproductive over time.&nbsp;<\/p>\n\n\n\n<p>This adversely affects\nthe overall efficacy of the cash flow management and result in compromised\nworking capital. All these loopholes are fused as a result of a business&#8217;s\nfailure to leverage the latest technology because of the following:&nbsp;<\/p>\n\n\n\n<ul><li>Isolated processes and operations across the front, back-office, and middle.&nbsp;<\/li><li>Lack of coordination with sales and credit teams.&nbsp;<\/li><li>Negligible access to workflow, ongoing issues, collected data<\/li><li>Increasing bad-debt and unclear dues<\/li><li>Inefficient record systems like billing systems, ERPs, &amp; programs for customer relationship management.&nbsp;<\/li><li>Non-legitimate billing created from the decentralized, manual, &amp; non-optimized process.&nbsp;<\/li><li>Maximum number resolved small-balance transactions.&nbsp;<\/li><\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/account-receivable-payable-process-in-cash-flow-management\/\">Account Receivable &amp; Payable Process in Cash Flow Management<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Best_Tips_to_Improve_Account_Receivable_Working_Capital\"><\/span>What are the Best Tips to Improve Account Receivable &amp;\nWorking Capital?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Streamlining your AR process may seem like a cumbersome task at first, but it can be done with ease by leveraging the following given strategies, along with improving the overall performance of the business:-<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/03\/What-are-the-Best-Tips-to-Improve-Account-Receivable-Working-Capital.png\" alt=\"Best Tips to Improve Account Receivable &amp; Working Capital\" class=\"wp-image-28256\" width=\"530\" height=\"386\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/03\/What-are-the-Best-Tips-to-Improve-Account-Receivable-Working-Capital.png 900w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/03\/What-are-the-Best-Tips-to-Improve-Account-Receivable-Working-Capital-300x219.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/03\/What-are-the-Best-Tips-to-Improve-Account-Receivable-Working-Capital-768x560.png 768w\" sizes=\"(max-width: 530px) 100vw, 530px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Precise Management of Customer Data<\/h3>\n\n\n\n<p>To setup &amp; maintain\na productive AR process, it is imperative to centralize the primary data\nprocess to ensure that the customer accounts and information are accurate. For\nexample, when the addresses of the customer are invalid, it results in\ndelivering the invoice to a faulty address, making the collection process more\ncomplicated.&nbsp;<\/p>\n\n\n\n<p>It is essential to\ndeeply examine the customer&#8217;s account periodically to identify anomalies such\nas unusual terms of payments, credit limits, and discounts. Any alternation\nmade to the customer data should be backed by a document for future reference.\nThe firm should pay attention to setting up an effective control to minimize\nthe occurrence of data manipulation.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Inculcate Customer-Friendly Approval Process&nbsp;&nbsp;<\/h3>\n\n\n\n<p>Often, it is seen that businesses form an unproductive credit protocol for the sake of increasing sales, leading to compromised cash flow management. Extending credit is not bad for the business unless it does not impact the company&#8217;s working capital or <em><strong>cash flow<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Cash_flow\"><em><strong>[1]<\/strong><\/em><\/a><\/sup> management. The firm must leverage a definite process for approval for extending the credit.&nbsp;<\/p>\n\n\n\n<p>The process should\nreflect the entire workflow of the application process, the condition under\nwhich an account is put to hold, along guidelines related to the evaluation and\noverriding of credit limits. Also, to ensure that the credit approval process\nis in action, the consistent audit must be done to identify the pain\npoints.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Incorporate Efficient Billing Process<\/h3>\n\n\n\n<p>Every company&#8217;s billing\nprocess creates a roadmap for either productive or inefficient invoice\nmanagement. The invoice process must be optimized for higher accuracy as any\nerror can have a long-lasting impact on the overall productivity &amp;\nprofitability. Also, it is imperative to deliver an invoice in a timely manner,\nalong with defining the method they are created.<\/p>\n\n\n\n<p>To serve such a purpose,\nleverage the latest gen technology to digitize the invoice process is one of\nthe best solutions. Accounts with errors should be pointed out with a report\nhighlighting the root cause for efficient dealing.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Refined the Cash Application Process<\/h3>\n\n\n\n<p>When payments finally\nreached the company, they must be attached to the legitimate invoices and the\nvalid customer. This is imperative to address future conflicts. Also, payment\nshould be applied timely to classify the current &amp; past accounts.&nbsp;<\/p>\n\n\n\n<p>The cash application\nprocess can be streamlined easily with minimal complications by providing\nclients with confined payment alternatives. The journal entries must be\nrecorded accordingly &amp; beforehand w.r.t cut-offs dates. Routing the cash\namount to the suspense accounts must be avoided until you pinpoint the exact\nsolution for the problem.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Mitigate Inefficiencies from the Collection Process<\/h3>\n\n\n\n<p>To ensure seamless cash flow management, it is imperative to optimize the AR process as per the existing conditions. A proactive approach must be adopted to aid the collection efforts.<\/p>\n\n\n\n<p>On the other hand,\nsetting up a production process to negotiate payment plans is essential to\nensure compliance with the company&#8217;s objective. Also, to reduce the manual\nentry loopholes, one must leverage the latest technology for automating the\nwhole process.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Any firm can improve its working capital by converting its current assets into liquidity in a timely manner. For example, if a firm can efficiently oversee its accounts receivable and inventory, it can increase cash flow and improved working capital. Likewise, if a firm can setup supplier-friendly credit terms with its vendors, the firms will have the advantage of having an increased working capital.&nbsp;<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/tips-to-manage-accounts-receivable\/\">Accounts Receivable: Definition and Tips to Manage<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Regardless of the business structure, it is essential to have a productive accounts receivable strategy in place to optimize cash flow. No business can carry its operations until it has optimal Working capital , and this is only feasible when the accounts receivable process is twisted as per the company&#8217;s situation. However, various entrepreneurs and [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":28255,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[128],"tags":[1630],"acf":{"service_id":"297"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":4327,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/28202"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=28202"}],"version-history":[{"count":8,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/28202\/revisions"}],"predecessor-version":[{"id":28258,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/28202\/revisions\/28258"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/28255"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=28202"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=28202"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=28202"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}