Digitizing accounts receivable is key to business success
One of the many unexpected challenges many small and medium-sized business (SMB) owners face, is managing accounts receivable (AR). In layman’s terns, AR management is the sum of everything you need to do to make sure your business gets paid in full, and on time.
In this article, we’ll explain what AR means and how digitizing and automating it can help your business grow and succeed.
What’s accounts receivable?
Accounts receivable is an accounting term that refers to any payment you expect to receive in the next few months for goods and services already rendered to customers.
AR includes any net-terms deals that will only be paid in 30, 60, or 90 days, as well as any other open or past-due invoices you issued. Since it refers to money that is expected in the near future, AR is listed under current assets in your balance sheet.
While it may sound similar, AR should not be confused with accounts payable (AP). This term refers to open bills or invoices for goods and services provided to your business, which you haven’t paid for yet.
4 ways digitizing accounts receivable helps small businesses thrive
Successfully managing AR requires a series of actions, including sending out payment requests, tracking the current state of each invoice, sending out reminders, and keeping a clear record in your books.
Many of these tasks can be made easier and more efficient by using a digital business-to-business (B2B) payment platform like Melio.
Here’s how a digital AR tool improves your business’s health:
1. It improves cash flow
We know it sounds weird, but using a digital AR tool can actually help you get paid faster, giving your cash flow a nice boost.
Online payment tools encourage your customers to pay sooner by letting them choose whatever payment method is convenient for them, without affecting how you get your money.
So, if they want to use a credit card, for example, to put off the payment until their next billing cycle, they can do that for a small fee, that’s usually tax deductible too. They also get to collect card perks and miles on business transactions that would otherwise get unrewarded, while you get paid immediately, according to your own preferences.
Also, instead of waiting for checks to arrive in the mail, which can take days or weeks, and then having to deposit them and wait for several more days for processing, you just get the money directly into your account, within 1-3 business days.
And, since every invoice and transaction is listed and accounted for in a single dashboard, you’re less likely to forget to collect on a payment that is owed to you.
2. It saves time
Receiving all your payments through an online platform takes the guesswork out of the time-consuming and inefficient reconciliation process. That’s because each incoming sum is automatically associated with the relevant invoice, which is then marked as paid.
You also don’t need to waste time alternating between platforms and apps, because everything is done in one place: sending out payment requests and reminders, as well as tracking the status of each payment.
These benefits mean you can spend less time chasing customers who just forgot to pay or didn’t get to the bank yet (now they don’t have to) and focus only on those customers who have a real issue with the payment.
The time you save can be spent on growing your business and gaining new customers.
3. It’s cost-effective
You shouldn’t have to pay to get paid. Melio offers its accounts receivable tool completely free of charge, without requiring a paid subscription or charging any fees for incoming ACH bank transfers.
Your customers also don’t need to pay any fees if they choose ACH as their payment method and are only charged if they choose to pay by card or other select options.
In other words, you’re saving money (for you and your customers) just by getting money.
4. It’s secure
Money is a sensitive issue for anyone, especially small and medium-sized businesses (SMBs). So, it’s important to make sure you’re using secure methods to send and receive payments for your business.
Unlike checks or cash, digital payments can’t be stolen or lost en route, so you don’t have to worry about them falling into the wrong hands.
Also, your private bank and payment information, as well as that of your customers, is kept safe and encrypted when using a reliable payment tool like Melio. This helps protect both businesses from cyberattacks, identity theft, and fraud that could have a serious negative impact.
A better way to get paid
Getting paid in full and on time is crucial for the day-to-day operations of your business. The last thing you want is to find yourself in a cash flow crunch just because you don’t have an efficient way to receive payments and manage AR.
By using a digital tool to handle your accounts receivable you are making it easier for customers to pay you, increasing the likelihood that they would do so on time. You’re also limiting your risk and exposure as well as the time and effort spent on AR tasks such as tracking and reconciling payments.
So, what are you waiting for? Sign up for Melio today to ensure you always get paid on time and with minimal added effort.