Cash Flow Management: How To Free Up Your Cash FlowThree ways to improve the receivables management process
Every successful business owner knows that cash flow is one of the most important factors to the success of his or her business.
Just as fuel keeps a car engine working, cash flow keeps your business moving forward. Employee wages, stock, rent and other operating expenses drain your business ‘fuel tank’ and unless you’re replacing that fuel at regular intervals, your business is likely to splutter to a stop by the side of the road.
The concept is simple but many businesses face challenges to ‘refuel’. Each time a business has an outstanding account receivable, they’re providing credit free of charge to their debtors. And the longer these receivables remain outstanding, the higher the likelihood that they turn into bad debts and write-offs.
It’s not rocket science: the timely payment and efficient collection of past due invoices mean quick turnover of working capital invested in the same receivables. According to a recent report, profitability of businesses across the Asia Pacific region is hindered by an inability to contain costs, maintaining adequate cash flow and inefficiencies in accounts receivable. In particular:
- Average payment terms: Business to business (B2B) customers in Asia Pacific are given an average of 33 days from the invoice date to pay for goods and services purchased on credit (higher than in the Americas and Europe, 28 and 32 days respectively). The average payment terms in 2015 became up to three weeks longer than 2013 with Japan extending the most relaxed payment terms in the region (averaging 47 days), followed by Taiwan (41 days), China (37 days), Indonesia (26 days) and Australia (20 days).
- Overdue B2B invoices: 90.2% of businesses in Asia Pacific reported having experienced late payment of invoices in 2015. 25% of the total value of B2B receivables in Asia Pacific were reported to be still outstanding after more than one month past due date and about 10% were still unpaid after 90 days.
- Average payment delay: Domestic B2B customers in Asia Pacific settle payment on past due invoices, on average, 25 days after the due date. Foreign B2B customers make their overdue payments, on average, 28 days after the invoice due date (the Americas: 37 days; Europe: 20 days). Interestingly, a comparison between the average payment delays recorded in Australia and the contracted payment terms set by suppliers suggests that, setting short payments terms for B2B customers, does not improve their payment behaviour.
Although these limit the potential of any business whose working capital is not invested to further grow the business, new technologies coupled with financial reforms set by central banks within Asia are facilitating a faster adoption of online and mobile B2B payment solutions that businesses can leverage.
It’s telling to note that over 53% of the greatest challenges to business profitability in Asia Pacific are directly linked to receivables, collectively outstripping cost containment and falling demand for products and services.
Based on our experience, there are three (3) quick, low cost and effective ways to improve the receivables management process, avoid cash flow issues and streamline collections:
1. Electronic and automated invoice processes can result in savings of 60-80% compared to traditional paper-based processing. The digitization and interoperability of invoices not only helps speed up the distribution of invoices but also their payments through an integrated “Pay Now” button linked to an online payments page. By facilitating the ability for the recipient (debtor) to pay invoices immediately, businesses could shorten the number of Days Sales Outstanding (DSO) by up to 20%. We have found that the invoice payment capability encourages the Payer to pay as soon as the invoice arrives because of the ease of paying. This has 2 benefits: (1) the payer pays faster which improves merchant cash flow and (2) the payer pays in a way that automatically allows the payment to be reconciled back to the invoice inside the back-office solution (accounting system, ERP etc.) which will further improve the efficiency of collections. We have found that invoices can be paid up to 6 weeks faster because of these benefits and the merchant is heavily incentivized to encourage the payer to pay via this method.
2. Accounts Receivable (AR) automation enables Finance Departments to get wider visibility of the AR process and ensures a tighter control over the money owed by the business. Best practice solutions enable operators to set invoice distribution and reminder/notification rules, take ad hoc credit card and bank account payments, set up direct debits for a recurring invoice, and track/report on customer disputes and notes. Such implementation could generate up to 60% reduction in payments receipting, matching and reconciliation costs, 20% reduction in capital cost, 38% improvement in staff efficiency and, in some cases, 28% reduction in staff.
3. Collections automation can assist businesses to streamline internal collections processes and aid in the collection of scheduled and late payments (Promises-to-Pay). Benefits span from shortening the number of DSO by up to 20%, reducing customer calls by up to 61%, checks remitted by up to 52% and unallocated Direct Deposits up to 28%, improvement in customer and staff satisfaction and visibility of customer activities and therefore reducing customer risk.
Mint Payments offer business owners a suite of online and mobile payment tools to help businesses take control of their cash by tracking where the money is, knowing when it is due, and efficiently collecting it.
About Mint Payments Limited
Mint Payments Limited (ASX: MNW) is a leading omni-channel payments solution provider that utilises bank grade enabled technology and infrastructure on various POS, mobile, tablet devices and online interfaces. Mint Payments has an innovative payments technology and transactions processing platform that integrate business processes to service credit and debit card payments across multiple markets and multiple channels. Headquartered in Sydney, Australia with offices and operations in Singapore and Auckland, Mint Payments delivers simple, fast, secure and flexible payment processing solutions to help businesses and organisations of any size grow.
 Atradius, Atradius Payment Practices Barometer. Available from <https://group.atradius.com/publications/payment-practices-barometer-asia-pacific-2015.html> [October 2015]
 Billentis, E-Invoicing/E-Billing, Billentis. Available from <http://www.billentis.com/e-invoicing_ebilling_market_report_EN.htm> > [June 2015]