January 15, 2013 by Rick B
Last week we discussed the value outsourcing can provide a business/organization. This week we will focus on a variety of ways you can effectively assess your business to determine if outsourcing may be a route to consider. As we mentioned last week, there are a variety of services/tasks you can outsource for your business.
Today’s discussion will be focusing on accounts receivables, because, well, that happens to be our area of expertise.
One of the most common areas of trouble can be found within the exact instrument that is meant to track your A/R, your billing system. There is some great software available, and many companies have made significant investments in the software they use to track A/R.
The best billing system in the world is not full-proof. Any system that requires humans to input data is susceptible to hiccups. For every one person you have entering information into your billing system, the possibility for inefficiencies increases exponentially. We have seen it time and time again, even with great training; it is rare to find two people who enter the data in the same fashion. If the business office does not have time to keep up with the input of data, or input it accurately, big problems can arise down the road.
Call to Action: Review your billing system (is it antiquated, does it fit your needs, etc.) and review your processes to ensure data is being entered both accurately and consistently.
Call to Action: Speak with the people who work the most with your billing system. If you are the one who works with the billing system, speak candidly with your supervisor about any inconsistencies you may have uncovered. Billing, like any other process that is done daily, sometimes is done on auto-pilot.
How promptly are you getting paid?
Review your accounts receivable aging report (this should be a standard report) to determine how many past-due accounts are floating around in space. In addition to finding past-due accounts, you will want to determine your average collection period. Your average collection period will show how long it takes, on average, for you to get paid.
Call to Action: Determine how many days it takes for an invoice to be sent out. If your terms are net 30, the clock usually doesn’t start ticking until one day after an invoice is received. If an invoice is not sent out for say, 20 days after the date of service, those are 20 lost days. The point of this exercise is to determine the actual amount of time it takes you to get paid. Your average A/R may look great, say it is 27 days. If the invoice did not go out for 20 days, your average A/R is really 48 days (not good). Make sure you are taking full inventory when making these calculations.
Later this week we will talk about the next steps you can take to ensure your A/R is in the best shape possible. Have any questions? Leave a comment, or ask us personally.