Having sales and profits is great, but having cash flow is even better. Many companies forget about this important nuance in business. Many bankruptcies in businesses boils down to the fact that they are struggling with their cash flow. This means that these companies are ultimately struggling with their accounts receivable, since they have sold on credit terms, but have yet to see that cash from their customers.
So, ultimately, the way to combat this is to decrease the amount of time it takes you to get paid. A common way that many businesses look at this is through days sales outstanding, or DSO. By decreasing your DSO, you’re less likely to have to take out a line of credit to support your own business. Unfortunately, customers often take advantage of payment terms since it is essentially an interest free loan. This is why introducing an automated accounts receivable software is so crucial to keeping your DSO low and your cash flow high. The software will continuously reach out to and remind customers to make their payments, among many other features, helping you to get paid on time.
So, how much will you save by using automated accounts receivable software? Below is an example calculation, which you can easily fill in with your own data, to decide what the ROI of A/R software is.
AUTOMATED ACCOUNTS RECEIVABLE SOFTWARE ROI CALCULATION
The following calculation is based on an example company, ABC Enterprises, with $500,000 in annual credit sales and an average DSO of 60 days. Additionally, calculations will use a 3.25% interest rate.
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