As the proverb states- “Consistent cash flow is what keeps the engine running.” No matter the size of the business i.eFrom SMEs to large organizations, businesses can’t enter into a profitable state until and unless their finances are being managed wisely. The absence of a well-planned and organized account receivable process can force the business to live with unpaid debts, delayed paychecks, and delinquent accounts.  

Businesses today are so busy focusing on acquiring new customers and then delivering the services, that they end up spending significant amounts of time and effort on fulfilling the customers’ demands and neglecting to collect the receivables. So, to maximize the ROI and not let the hindrance of negative cash flow affect your business, it’s crucial to outsource accounts receivable i.e., hiring a Virtual CFO.  

BI tools and data analysis allow virtual CFO to gather rich insights into the account receivable and credits so that you can predict and visualize where your business is going.  

What Is Accounts Receivable Management?

Being an integral part of business management, account receivable management has shown a consequential influence on your business’s customer relations, operational & capital handling, invoicing, analysis of payment trends, and cash flow processing.  

Account receivable specifies the payments owned to your business for the services/ products that have already been delivered to the customers. Precise AR management ensures that the payments are made on time, persistently, and trustworthily. 

Can data analysis and BI tools help in receivable management?

Data analysis and business intelligence (BI) tools can aid Virtual CFO with the receivable management of any business by gaining insights, analyzing data, and determining areas of improvement. Here are some ways to do so- 

• Tracking and Monitoring Receivables: 

Constantly tracking huge amounts of data available from multiple sources can be an arduous task to cope with. That is where the utilization of data analysis and BI tools will work in Virtual CFO’s favor, as it helps them in unifying diversified data into a single data source, thereby eliminating manual inaccuracies and speeding up the reporting process. 

With real-time data visibility, BI tools can aid VCFO to track and monitor receivables, detecting potential risks and possibilities, and helping in making accurate decisions to improve the cash flow.

The data collected about the customers include customer details, payment and invoice details, payment trends, aging reports, and outstanding balances. This will further guide the virtual CFO to look out for slow-paying or high-risk customers whose past accounts are due or any other issue. 

Based on the issues identified, VCFO will take the appropriate actions. For example- If payments are overdue, the vCFO may send reminders or give follow-up calls to customers earlier than they do to the one who pays on time. Or with high-risk customers, the vCFO may review their credit terms or offer payment plans. 

• Identifying Trends and pattern: 

As the proverb goes- “It’s better to act on the problems immediately, rather than waiting for things to get worse.” The same is the case with the cash flow management of any business. 

Predicting the exact future cash flow might not always be possible, but identifying trends and patterns in customer behavior can aid virtual CFO to identify opportunities for improvement and take proactive steps to mitigate risk and improve receivables. 

Using BI tools, VCFO can monitor & generate reports on payment trends including customer details, payment cycles, amounts, delays, and modes of payment. This further helps them to standardize data formats and identify patterns for delays in payments like seasonal payment fluctuations, customer disputes, or billing errors. 

Depending upon the patterns and trends identified, Virtual CFO takes appropriate steps & enhances the payment process. For example- If the delay is due to disputes or billing errors, vCFO can examine & provide better additional training to staff. If it’s seasonal fluctuations, vCFO can adjust payment terms and conditions or offer incentives to motivate timely payments. 

• Automating processes: 

Although as the sales chart goes up, so does the performance of the business. But with the increasing sales and multiple opportunities comes the burdensome responsibility of handling multiple processes at the same time. 

This may include creating & allotting invoices, managing customer credits & collection, applying for cash payments, and supervising the complete process, and all this can become cumbersome even if you have a small business to look after. 

In such an instance, an automation process being adopted by the virtual CFO can bring a big difference in the receivable management process. BI tools and data analytics can be used to automate tasks like sending invoices or reminders like email, text messages, etc. to customers, thereby reducing human error and saving time to focus on more strategic tasks. 

The most critical benefit of the account automation process is the capability to enhance the cash flow mechanism by speeding up the order-to-cash (OTC) cycle i.ecompany’s end-to-end activities from making sales to receiving payments. 

Automation helps VCFO to reduce the period of the OTC cycle which favors the business to gather cash more quickly from customers. Automation also reduces Day sales outstanding (DSO) by quickening up the invoice workflows, thereby optimizing the ROI, speeding the cash flow & raising the company’s liquidity.  

• Forecasting Cash Flow: 

Can you predict when your customers will pay you next? Of Course, that sounds like a crazy idea to make the exact prediction, because not all of them make the payments on time. So, the most reliable way for this might be to consider an account receivable management solution with statistical cash forecasting. 

Based on customers’ past payment behaviors and receivable data, applying the predictive analytics method & BI tools to forecast cash flow not only gives your business a competitive advantage over its peers but also aids in planning future expenses & making informed decisions accordingly. 

The historical data collection of any customers includes their bank statements, cash flow statements, and other financial records. A report generated based on this covers all the relevant metrics including the inflow & outflow of cash and revenue & expense models. 

This helps them to identify the pattern & trends in cash flow management regarding customer payments & seasonal fluctuations. With the help of statistical models, Virtual CFO can now create & monitor forecasts to estimate future cash flows and take proactive measures to manage cash flow, thereby ensuring financial stability. 

• Tracking key performance indicators (KPIs): 

Tracking key performance indicators can deliver astonishing results and help VCFOs to enhance the account receivable process, all you need is to make sure which metrics affect the most to your business. 

In this fast-growing pace, tracking KPIs like DSO (days sales collection) or ACP (average collection period) are the most crucial ones, as they can guide Virtual CFO to evaluate the impact of receivable management practices & determine which area of the business needs to be upgraded. 

DSO states the average no. of days clients/customers take to pay back to your business. If that goes on higher ranking, it indicates that clients are paying their invoices way past the due dates, which surely is a red signal as your cash flow management is in jeopardy.  

Your aging reports contain all the insights in a visual representation manner categorized by due dates and automated dashboards can help VCFO to track the account receivable metrics. 

Data analysis & BI tools allow you the opportunities to arrange and monitor the data insights and KPIs by arranging them in a synchronized and centralized manner that aids you in relevant decisions making.  

Wrapping Up

Account receivable management is extremely crucial to any business and if operated efficiently it can maximize the cash flow and generate better ROI. Utilization of data analysis and BI tools in this process can aid Virtual CFOs and organizations to make informed decisions, reduce bad debts, and improve overall financial health.