September 15, 2020

How Businesses Can Increase Cash Flow and Collections with Better Invoicing

It’s no secret that businesses want to be paid on time. Timely payments can help keep accounting up to date, ensure trust with vendors and put money in the bank. Unfortunately, sometimes payments are late or seemingly impossible to get, and in some cases the invoice is to blame. By following simple invoicing best practices, you can help improve cash flow and collections.

Invoicing Best Practices

  1. Invoices should be complete. This may sound obvious, but when it comes to invoicing customers many businesses miss the mark by leaving out relevant information customers need in order to pay their bill. Check that invoices include the items below to prevent delayed collections.
    • Remittance information, including:
      • Business name
      • Contact information
      • Remit to address
      • Methods of paying the invoice
    • Customer information, including:
      • Customer name
      • Contact information
      • Purchase order or job number, if applicable
    • Additional information:
      • Date of invoice, typically the date the invoice is sent to the customer
      • Invoice number, which should follow a sequential order. Request the customer references the invoice number when they remit payment.
      • Payment terms
      • Total amount due, line item amounts optional
      • Due date
      • If applicable: date of service, description of service(s) provided, proof of delivery, product description(s)

  2. Invoices should be timely. By delivering the invoice shortly after service(s) are provided, it increases the chances of collecting payment. When payments are late, a timely follow up call can also help shorten the cycle. Calling has been shown to be more effective than either e-mail or mailing statements and speaking to customers can strengthen the relationship. 

  3. Invoices should be easy to understand. Make sure to first identify the document as an INVOICE so it’s not confused with a sales order, purchase order or receipt.

    Are you offering a discount amount for paying on time? Save your customer the extra step of calculating it themselves and avoid payment discrepancies resulting from miscalculations. Also clearly explain the statement of late fees if you want to enforce such fees, and check with your state laws to ensure the fee rate is compliant.

    Don’t forget to clearly spell out the due date, amount due and terms. While payment terms should allow the customer to arrive at the due date, spelling out the due date makes the invoice easier to read and increases the chances of timely payment. If you have multiple payment options, like EFT or credit card by phone, to make it easier for customers to pay, make sure to detail the options.

  4. Invoices should be accurate. This includes routing the invoice to the correct individual or department and checking the billing address. The billing address could be different than the physical address. When possible, deliver invoices electronically for easier recordkeeping.

  5. Invoices should be professional. Each invoice should include your company logo or letterhead, follow a consistent format and ideally be limited to one page.

Establishing a credit policy can also help get your payments on track. Running a credit check on new customers, asking for credit references and starting out with cash in advance before moving to terms can help set expectations.

Anders Outsourced Accounting can help take the pain out of invoicing and make sure your financials are always available in real-time. Contact an Anders advisor below to learn more.

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August 25, 2020

Natalie B. Horstmann

May 20, 2020

Accounts Receivables: Where the Cash is Hiding

While there is much unknown today, one thing is for certain – the need for cash is a top priority.  Business owners and CFOs who pivot now will be best prepared to handle these uncertain times. One place to make changes is in accounts receivables.  

Over the last several years, businesses enjoyed a booming economy, low interest rates and ample cash flow.  When times are good, there is a tendency to get lax about receivables. But now as supply chains are affected and managing cash flow becomes more important, companies typically look to optimize three key strategic aspects of working capital:

  1. Cost-cutting
  2. Inventory management
  3. Delaying the accounts payable process

We suggest account receivables is #4.

Accounts receivables are often the largest line item on a balance sheet and have traditionally been an administrative concern. However, as the fourth key factor of optimizing working capital, accounts receivables offers an untapped opportunity for innovation in making the most of working capital.

Manual cash application and other similar repetitive tasks dominate the work day, leaving little or no  time to spend on strategic value add activities. As economic factors change over time, so does a company’s ability to manage their accounts receivables – but this is where cash could be hiding.

Strategies to Improve Cash Flow Surrounding Receivables

In order to develop strategies to help your cash flow, you need to understand your current state.  Be sure to review these categories and ask yourself these questions. The answers will help you identify what you are doing right in accounts receivables and what changes need and can be made.

Credit Policies and Procedures:

  • Do you have a credit policy, or when was the last time it was reviewed and updated?
  • Do you use information from such sources as industry credit groups, credit bureau reports, financials statements, credit references, and public records to evaluate an applicant’s credit?
  • Do you re-evaluate a customer’s creditworthiness on a regular basis, or at all?
  • Do your procedures clearly outline the terms and conditions of the sale of your products/services?

The ability to extend credit to a customer is not given, it’s earned by the credit worthiness of that particular customer. The credit policy is in place because you are taking a risk when you extend work or product to a client. A credit policy is in place to help mitigate the risk, formalize procedures for determining acceptable risk, and set up procedures for dealing with the credit relationship. The need for good credit management to protect your cash flow and working capital becomes even more critical at a time of uncertainty due to economic factors such as the Coronavirus and political turmoil, and others.

Invoice Presentation

While much of this advice might sound pretty straight forward and easy, many companies struggle to get invoices to customers in a timely manner or worse yet, the invoice has incorrect information that delays customer payments. After all, it’s hard to collect an invoice the customer does not have or is inaccurate or incomplete. See how many of these questions can be answered with “yes.”

  • Are invoices issued within 24 hours of providing service or shipping of merchandise?
  • Are invoices automatically generated by your inventory or other invoicing system?
  • Are invoices accurate, clear and complete?
  • Are invoices sent electronically allowing for quicker receipt?
  • Does your organization allow for payments via ACH, credit cards or other electronic means?
  • If electronic payment options are available, have these options been prearranged you’re your customers, or presented along with the invoice to allow for quick and easy payment?
  • If you assess late fees, is this clearly provided on the invoice?

Use a cloud-based software for invoicing. If not part of your accounting software, make sure the software integrates with your accounting system to eliminate any manual effort. Cloud-based systems allow you to access the information anywhere and are often more secure than other alternatives. Most options provide for different invoice delivery methods and payment options, allowing for improved collections. This software can also help you can more accurately track receivables. You can see the invoices that have been sent, and if they’ve been viewed by the customer; as well as what’s been paid and what invoices remain outstanding.

Cash Application Procedures

An area that causes trouble is when customers pay their bills. Ponder these questions regarding your current procedures.

  • Are your cash application procedures manual or has artificial intelligence been employed for automating cash application across all payment and remittance formats?
  • Are cash receipts being posted daily?
  • Do you allow receipts to be credited against a customer’s account rather than apply receipts to a specific invoice?
  • Do cash receipts go into a suspense account rather than reconciling customer accounts on a timely basis?

As payments come in, it’s essential they be applied both to the right customers and to the specific customer invoices to which they relate. And this needs to be done on a daily basis so you always know which accounts are up-to-date and which are outstanding. Otherwise, it’s impossible to track which customers paid on which invoices – making follow-up on late payments a virtual nightmare. Companies that get this wrong often waste considerable time and resources.

Collections and Deductions Management

As a way to manage your cash flow, you may be employing the strategy of delaying payments to your suppliers. Don’t be surprised if your customers are thinking about doing the same thing to you. That’s why it’s important to improve the rigor of your collection processes. It may be time to review and make changes.

  • What are your collection policies?
  • How often is the aging report updated?
  • How often are receivables reviewed for collections?
  • Does your credit policy provide for specific procedures surrounding collections?
  • What are your procedures for identifying and resolving invoice disputes and short payments?

Get the basics right, such as accurate invoicing. Any errors in your billing process can lead to costly delays in receiving payment. Strengthen processes to make sure your accounts receivable aging reporting is accurate. Make sure you are following the collections process outlined in your credit policy. Also, focus on customer-specific payment performance and identify companies that may be changing their payment practices. You may even want to start contacting your customers with larger accounts before the invoice becomes due to make sure these balances are paid timely.

With companies reeling from the effects of COVID-19, taking an in-depth look at your accounts receivables is a smart and critical step to take. You may find some hidden cash, or at least will know where it is not. Contact an Anders advisor to learn more about benefits of outsourced accounting for your business.

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May 12, 2020

Outsourcing Accounting Functions Can Help Your Business Pivot and Plan for What Comes Next

During the current crisis your attention has been focused on saving your business and keeping cash flow positive. You’ve had to make some hard decisions, maybe even choosing between laying off employees or to stop paying your rent. Perhaps you’ve had to look at downsizing or eliminating positions, including your accounting staff. But today more than ever, you need real-time financial data to run your business and you can’t afford not to have that information. It could be time to consider outsourcing.

Outsourcing allows organizations to scale resources up and down as needed, without having to worry about personnel costs and the related costs of hiring, training and maintaining your staff. Outsourcing accounting functions to qualified firms allow for managing processes such as accounts payable, payroll and financial statement preparation. It also provides you and your business with the opportunity to leverage the varying expertise of many accountants to yield additional benefits, which is even more critical as we adjust to business in this new environment.

Benefits of Outsourcing

Here are just a few of the reasons the outsourcing option could help your business today and be a solution for the long term.

Cut Costs

Do you automatically think hiring an accounting firm to manage your books will cost more than hiring an internal person? The fact is you’re more likely to save money.  Instead of paying full-time or part-time wages and benefits to an employee – including insurance, payroll taxes, unemployment taxes, paid time-off, etc. – you pay only for the time required from a staff focused solely on your financials. You won’t have to worry about lost productivity from office distractions, staff meetings, and vacations or providing a workspace and equipment needed to do the job in-house. As an example, an analysis of one of Anders current outsourcing clients showed a $110,000 of cost savings by outsourcing vs using inhouse accounting services. The good news is that outsourcing is scalable for most businesses of all sizes. 

Trust an Experienced Team of Advisors

Now is the time you need an experienced team helping you manage and analyze your financial situation. An accounting firm offering outsourced solutions brings experience from a variety of client situations that internal employees may not have. Take for example your Paycheck Protection Program loan. You may have received the loan, but now what? Effective financial management requires a deep understanding of accounting best practices, current laws and regulations, and compliance requirements. By bringing in an outsourced provider, you have access to the right set of knowledge for tasks from payroll and accounts receivables to financial statement analyses and tax planning.

Access the Best Accounting Software and Cloud-based Systems

When stay-at-home orders were announced, were you ready for your accounting staff to work remotely? Did your accounting processes continue without interruption? While many businesses may not be able to justify the price tag of today’s technologies and accounting platforms, outsourcing is a way to gain access to expensive technology infrastructure investments, all while accessing data remotely and in real time. Typically, organizations find lower IT costs and greater system reliability as a result of outsourcing.  You’re essentially purchasing those tools indirectly without having to do the system research, licensing, or funding. This is ideal for those looking to cut costs or have limited means. Cloud-based accounting systems can provide solutions allowing for less paper, easy tracking, and keeping your accounting files organized and backed up for many years should you ever get audited by the IRS. Additional benefits are:

  • Advanced functionality by optimizing automation
  • Ability to view all expenses tracked in real-time for complete accountability
  • Peace of mind that comes with additional security
  • Improved analytics to give a complete picture
  • Results delivered quickly and seamlessly
  • Scalable solutions for any size business

Enhance Security

It is well documented that we all have to be on the lookout for phishing scams and other security threats, which is one more reason to make the move. Think of your current processes that address confidential information and security of data from fire, theft, and hackers.  You may be vulnerable. When you outsource, security for your books and financial records is enhanced. Most outsourced accounting providers work with technology and information technology firms that have rigorous safeguards ensuring access control, confidentiality, and redundant data backup.

Minimize Risk

We find that well-meaning business owners often leave tasks such as bookkeeping until the end of the quarter or, worse yet, the end of year. In this current environment, you have to know what’s going on in your business each month, if not each day. While it’s understandable to want to control costs and manage the function themselves, it’s essential to understand the risk of errors and other issues that can arise from such an approach. When you outsource, you can minimize the risks typically involved with relying on your own knowledge and timing or in-house staff. Outsourcing your accounting back office means having your books closed on a monthly basis, all accounts reconciled, and an accurate set of financial statement prepared. By outsourcing, when you need to analyze your business or produce a set of financials for your banker or investors, the information is readily available.

Outsourcing your accounting function is a smart alternative to drive efficiencies and innovation at any time.  Today, it could be the best alternative to get your business through these most difficult times. Contact an Anders advisor to learn more about benefits of outsourced accounting for your business.

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April 29, 2020

10 Tips for Managing Cash Flow in a Crisis

During the boom times of recent years, businesses concentrated on growing the top line and managing costs, and not as much time focused on working capital components, such as accounts receivable, accounts payable and inventory. Now with financial strain on businesses as a result of COVID-19, business owners and leadership teams need to not only focus on revenues and reducing costs, but they need to concentrate on the balance sheet to optimize cash and maintain liquidity. It is imperative to keep an eye on your cash flow, regularly monitor your cash position and develop some survival strategies to get you through the crisis. 

Instituting an effective cash flow management strategy may be the most important action you can take to navigate through challenging times.

Here are some tips to control cash:

  1. Actively manage accounts receivables.  The typical 30- or 45-day  account review probably won’t cut it anymore. Now is the time to shorten collection times and improve your collection process. You may also want to closely review your customers, identifying those that absorb cash from the organization.
  2. Review customer payment terms. Consider early payment discounts, or advance payment options for those slow paying customers.
  3. Review accounts payable more closely.  While you don’t want to hurt your credit or supplier relationships, speak to your suppliers about ways to assist in managing your payments and shipments.
  4. Adjust inventory levels. First, make sure your inventory on the books is accurate. Analyze customer demands and adjust future purchasing as necessary.
  5. Adjust staffing levels. Look at customer needs and utilize resources to right-size your staff. There are currently opportunities for loans and additional monies for unemployment that could help and still provide for your staff.
  6. Review all costs. Determine which costs might be eliminated, reduced or renegotiated.
  7. Review all agreements.  Look at current and upcoming commitments, and determine if some could be restructured, delayed or cancelled.
  8. Review plans for capital investments. Determine which capital projects can be delayed, eliminated or modified.
  9. Establish a deeper relationship with your banker.  Make sure to discuss your cash flow and liquidity positions with your banker. Pay attention to any debt covenants.
  10. Prepare a cash flow forecast. If don’t already have a cash flow forecast, now is the time to start.  Begin with a simple 13-week projection containing your major cash inflows and outflows each week. This will allow you to understand periods of cash difficulty and provide you with time to maneuver.

The tips outlined above are very important in the current environment.  Liquidity and cash flow are always critical to business continuity. While it is an old clique, Cash is King today.  Every business should evaluate short-term cash flow and financing needs. This will provide you with the information needed to make the difficult decisions ahead with  greater confidence. Cash flow planning done today will allow businesses to see the bigger picture of the COVID-19 impact on the business and the length of time it will take to recover. 

Visit our COVID-19 Resource Center for more news, tools and insights you need to know in these uncertain times.

All Insights

March 5, 2020

Sue A. Yaekel

March 5, 2020

Allison E. Wexler

March 5, 2020

Skylar E. Trankle

March 5, 2020

Kimberly R. Russell

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