Maintaining a good A/R days number is vital for the growth of any business. This number should not be too high or too low, as striking the perfect balance is crucial to maintaining a healthy cash flow. Let’s explore five effective ways to reduce accounts receivable days and boost cash flow.
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1. Implement stricter payment terms
A stringent credit policy is a great way to reduce A/R days. You can impose late payment charges to payment terms to make the process effective and prevent customers from defaulting on their due date.
To get started, businesses should have a credit policy document in place. It can be considered a guide for the credit management and sales teams on issues relating to credit lines, risk exposure, payment waive-offs, etc.
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Business leaders looking to create or update the credit policy document can use a customizable template that outlines the broad sections that go into an effective credit policy document.
AI-powered Credit Risk Management Software helps automate credit scoring, approval workflows, real-time credit risk monitoring, and blocked order management. It helps you seamlessly implement your credit policy while reducing bad debt probability.
2. Incentivize early payments
Offer a small discount to customers that pay with cash or within their credit period to bring down A/R days. It may not work for every customer, but you can motivate businesses with healthy cash flow that still delay payments till the last day without any reason to pay earlier.
By leveraging the Global E-Invoicing and Payment Software to automate the billing and payment processes, businesses can provide support for discount strategies and resolve disputes on a real-time basis.
3. Collect proactively
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Businesses must identify accounts that are at risk and reach out to them before the due date. It will help cut down bad debt and reduce A/R days simultaneously. If a business wants to be proactive in collections, it should have an effective collections management strategy to identify accounts that show any signs of delaying payments.
AI-based Collections Software helps businesses achieve 75% faster recovery through worklist prioritization enabled by advanced technologies. It also enables companies to improve collections efficiency with real-time visibility into health metrics like bad debt, DSO, and CEI.
4. Make it easy to pay
Sometimes, a lack of convenient payment methods is all that stops a customer from paying on time. By adding multiple payment options like credit cards, debit cards, electronic fund transfers, and checks, businesses can reduce the friction of payments. It can therefore reduce accounts receivable days of a business.
5. Automate the accounts receivable process
Automate credit and collections processes to make them more efficient and help reduce the AR days. A report from PYMNTS suggests that 88% of businesses that have automated their accounts receivable processes have seen a significant reduction in days sales outstanding (DSO or AR days).
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