In any business, getting paid is essential to viability—that’s a no-brainer. But depending on the agreement a company has with its customers, time often lapses between the moment a customer purchases a product or service and the moment the company is paid for it. And that window of time—known as accounts receivable days—could have a negative impact on the business—depending on how long it is.
Accounts receivable days refers to the number of days a client’s invoice is outstanding before a company collects the amount that client owes it. You can calculate it manually—although the best AR automation software will do it for you—using this formula:
(Accounts receivable / Annual revenue)
x Number of days in the year
= Accounts receivable days
Calculating accounts receivable days helps businesses determine whether a company is a good credit risk—that is, if the customer will be able to pay an invoice in a timely manner. The shorter the accounts receivable days, the better it is for the company extending credit.
But oftentimes, businesses don’t recognize the importance of calculating accounts receivable days—and ensuring that window of time is timely and appropriate for their business to function optimally. In reality, by reducing the number of accounts receivable days, companies can strengthen their financial position and improve cash flow because they’re getting paid in a more timely manner. And that’s great for business!
Reaping the benefits of accounts receivable days
Ensuring outstanding accounts balances are paid by the due date the company and the customer agreed on provides multiple benefits to overall business operations. And the key to doing this more easily and efficiently lies in automation. In fact, the best AR automation software can help you:
- Gain accounts receivable efficiencies and predictable revenue streams: Better managing accounts receivable days helps the company extending credit to run more efficiently because it offers it clear visibility of its overall financial position.
- Lower accounts receivable expenses: It’s not uncommon for a customer not to pay a bill on time. But there are ways to stay ahead of what could turn into a delinquency. Communicate consistently with your customer before the due date—and be clear of the amount owed and the date it’s due. Clearly communicate the number of days they have to pay it, the type of payment you accept and the exact amount they need to send. And, in some cases, it may make sense to remind the customer even before the invoice is due that the payment is expected on a (quickly approaching) certain date. Resend the invoice so they have easy access to all the information they need to send the payment on time.
- Reduce days sales outstanding (DSO): Manually invoicing customers—many with unique billing requirements—undoubtedly leads to mistakes. And these mistakes only further delay payments. Better management of accounts receivable days through automation eliminates that concern.
- Improve cash flow management: The math here is simple. When you’re receiving payment on outstanding invoices in a timely manner—and in some cases reducing the days those bills are outstanding—you not only have more cash on hand, it’s also much easier to predict your future cash flow position.
The Best AR Automation Software
Traditionally, companies handle all of these tasks manually, which takes time and puts strain on accounts receivable departments. And a lack of time and AR capital negatively impacts the customer experience. In fact, for more than half of B2B finance employees, it takes four days or longer to onboard a new customer.
But with the right solution, such as TreviPay’s payments technology, all of these tasks can be automated—reducing or eliminating the time it takes to do them manually, saving both time and money.
TreviPay offers the best AR automation software. It helps companies lower AR expenses and increase cash flow. Our solution handles the underwriting, credit lines, onboarding and collections. And we extend terms on your behalf—freeing up working capital and reducing risk.
We also help you to reduce the strain on your internal accounts receivable department by evaluating and approving credit in less than 30 seconds, while meeting your invoicing requirements. For comparison, it takes a typical AR team three days or more to underwrite and onboard a new client.
TreviPay’s solution also reduces your days sales outstanding (DSO). With TreviPay, companies will receive payment in as little as 48 hours, while our customer support team handles invoicing, collections and customer disputes.
And, most importantly, you can dramatically improve their cash flow management with TreviPay. Companies don’t have to wait to collect on invoices. You can choose your settlement timing of two, seven, 14 or 30 days—which means you’ll significantly increase cash flow while reducing accounts receivable turnover.
Learn more about how the best AR automation software that’s part of our comprehensive B2B payments platform. If you prefer, start a conversation with one of our payments experts today.