Looking to boost your working capital but loath to take on additional debt, given the likelihood rising inflation will see interest rates start to head north sooner rather than later? You're not alone.

While the cost of borrowing remains low, the events of the past two years have reminded many business leaders of the benefits of a prudent approach.

In a 2021 address to the Australian Finance Industry Association, Reserve Bank of Australia assistant governor Christopher Kent observed the ‘reluctance of smaller businesses to take on more debt in a weaker and more uncertain economic environment.'

And just as business leaders have been more loath to borrow, so too have institutions become more cautious about lending. ‘Banks have required a greater degree of verification of borrowers' information, and banks have been more cautious about lending to new business customers and to the sectors hit hardest by the pandemic,' Kent notes.

The automation alternative

The good news is, there is another way, one that doesn't involve increasing your exposure to the vagaries of interest rate rises. Automating your accounts receivable function can help your organisation improve its cash flow significantly, operate more efficiently and elevate its relationships with customers to boot.

What's involved? In a nutshell, eliminating many of the repetitive manual processes associated with the business of collecting and assigning payments, including recording transactions, generating invoices and reminders and updating ledgers after funds are received.

Historically, this has been the work of armies of accounts clerks, but today, a cloud-based, automated accounts receivable solution can perform many of these tasks accurately, quickly and far more cheaply.

It's sophisticated software that's very simple to implement. Small and medium enterprises can expect to be up and running within four to five weeks, while larger players generally take three or four months to go live.

And when they do, there are considerable time and cost savings to be enjoyed. For example, organisations migrating to a best of breed platform can expect to reduce manual processing by more than 85 per cent and drive the cost of running their AR department down by up to 70 per cent.

Creating more working capital

They're compelling statistics and reason enough for businesses to head down the accounts receivable automation path but the cash flow improvements doing so can generate may result in an even more substantial benefit.

While 30-day payment terms are standard across many industries, thousands of businesses know that, in practice, this can mean 50 to 55 days if they're lucky.

For a $500 million turnover business, each day that can be shaved off that payment cycle represents around $1.5 million a year in freed up capital. That's money that can be put to work in the business, reducing the need to turn to external creditors to underwrite operations and fund growth.

By automating the collections process, you're able to reconcile payments instantly and achieve up to the minute visibility into the payment status of each and every business that buys from yours.

This means you can ensure you're chasing the right customers at the right times and deploying your resources on high-value customers whose timely payments will make a greater difference to the balance sheet.

It also means you won't waste time and effort – and risk generating irritation and ill will – by chasing debts that have been paid promptly but which your accounts receivable team is yet to apply.

Moreover, the rich data set your automated accounts receivable platform will generate over time will provide you with the intelligence you need to make smarter decisions about extending additional credit.

That means you can allow repeatedly reliable payers to spend more with your organisation, secure in the knowledge that doing so won't trigger a cash flow crunch a few weeks down the track.
  
Seizing the day

The old saying ‘cash is king' remains as true as it ever was and, in today's uncertain post-pandemic economic climate, never more so. Optimising internal processes to improve your cash flow and boost your working capital is a smarter, safer move than increasing your debt facilities. There's no better place to start than the accounts receivable department.

As your organisation prepares to tackle the opportunities and challenges ahead, adopting automation technology will stand it in excellent stead.