Do you want to know the meaning and importance of receivables management? See how to use this resource to strengthen your company’s financial health!
Dealing with the money that a company has to receive from customers and business partners is a task that requires attention and organization. Including, mastering this aspect of financial management can be the difference between success and failure of a venture.
Therefore, managing receivables is especially important. Despite this, many entrepreneurs often face difficulties in implementing and conducting this management effectively and capable of helping the financial performance of the business.
In this post, you will learn about the concept of receivables management and how the practice influences the financial health of your business.
Check out the reading!
What is receivables management?
Receivables management is a financial process concerned with managing the money that is owed to an organization by its customers. Receivables are generated when a business provides a product or service but does not immediately receive payment.
This type of transaction creates an account receivable, which is an asset to the business. Managing these accounts involves tracking when payments are due, making collections, and dealing with any delays or defaults.
This is a crucial process for maintaining a company’s financial health and improving its cash flow. In addition, he is part of the management of accounts payable and receivable for the business.
What is the importance of receivables management in the company?
Accounts receivable for a business indicate the financial resources that will be added to the company’s reserves. In practice, maintaining cash flow balance is essential to ensure that the company is able to honor its financial commitments in a given period.
However, this depends on the receipt of funds corresponding to the sales made. It is for this reason that, in practice, obtaining the value of a sale is as crucial as the process of attracting customers.
After all, not receiving the full amount tends to generate even greater losses than not making any sales, since there are costs related to making the product available or performing the service for the customer.
Receivables management is also essential to mitigate default risks and deal with this issue. The process lets you know when to send payment reminders or collect amounts, increasing the chances of recovering the amount owed.
Management is also important to facilitate the negotiation of terms and more appropriate payment methods with these consumers and, mainly, with suppliers. Thus, the business manages to keep its operations running, without giving up financial health.
Why should this process be done correctly?
Once you understand the importance of receivables management, it’s worth exploring further the effects it can have on the company — in particular, on its profitability. Also, if the due payments are not collected on time, the company may face liquidity problems.
It is worth noting that management helps determine investment capacity and schedule payments to suppliers. How to ensure the payment of suppliers if the value of certain sales is not received after the agreed period?
This issue can lead to delays in payment to suppliers, resulting in reduced inventory and impacts on business success, for example. Without this control, some problems can become habitual, as negligence in strategic tasks usually has long-term impacts.
Depending on the situation, the lack of attention to receivables can even lead to a loss of relevance in the market and the loss of customers. However, with forecasts and planning , it is possible to better organize the necessary actions and avoid problems.
When conducted diligently, receivables management also results in a positive balance sheet for any business. Among its advantages, points such as:
- Reinforcement in the ability to anticipate the amounts available over time, facilitating the organization for the future;
- Estimation of potential losses arising from customers with a high risk of default;
- Support for the decision-making process regarding the adequacy of working capital and the need for investments for business growth;
- Assistance in choosing the right moment for preventive measures. This is the case of the search for credit or the anticipation of receivables in periods of uncertainty.
How to carry out this process effectively?
The management of receivables involves several stages. First, it is crucial to define clear credit terms that determine when payment is due and what the late fees are. The next step is to record the values accurately.
This must be done as soon as the product or service is delivered, including the amount owed by the customer, the payment method and the due dates of the installments, if applicable. In this way, it is possible to better verify the general situation of accounts receivable.
In addition, it is necessary to monitor the status of receivables. Closely monitoring the payment schedule helps to identify overdue accounts and act in order to seek recovery of these amounts.
If a payment is late, you need to start the collection process. During this stage, companies need to be firm but respectful in their communications in order to increase the chances of regularizing the situation and maintaining a good relationship with the customer.
In addition, receivables management requires continuous assessment of consumers’ credit profile. This process helps minimize the risk of default by adjusting terms as needed and improving cash flow balance.
How can specialized software be helpful?
To optimize the management of receivables, it is worth resorting to financial management software . This resource is capable of helping the entrepreneur to conduct this process in a safe, agile and cost-effective way.
There are solutions that allow you to automate all steps, eliminating concerns about data inconsistencies, analysis failures, delays and fraud. The software is also capable of generating reports with insights to implement relevant actions regarding receivables.
It is also worth noting that the adoption of a quality receivables management system allows the entrepreneur to focus on other strategic areas of the business by optimizing time.
Other tool benefits include:
- Decreased time and operating costs involved in manual reconciliation;
- Improvement in the administration of receivables;
- Greater data protection and reliability, contributing to the reduction of the company’s operational risks and financial losses;
- Integration with several carriers;
- Support for making strategic decisions based on the control of receivables.