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George Green. The future of accounts receivable is customer-focused—is your company ready? Today, companies are reimagining their entire business.
Ready for Intelligent AR? Discover what YayPay can do for your business. Overview Integrations. Blog Resources Events Calculators. North American Inquiries. All rights reserved. Heading towards the end of each month and when quarter-end is nearing, many creditors scramble to get their accounts receivable up to date. In fact, most companies wait until an invoice is past due before taking any action at all.
But why not be proactive? The following strategies can be used to get accounts paid before they are due and speed up the collection process. By taking some steps to improve your billing and collections process, you can go a long way toward getting your sales finalized sooner and more efficiently. Going proactive on this is like money in the bank. Close Search Box. Search for: Search Submit. Collections Articles. Ineffective systems not only slow the process down but fail to provide the intelligence required to improve your credit to cash results.
Reevaluate your lockbox placement. If you use one or more lockboxes, do a study to determine if they are placed in the optimum location for collections. Lockbox studies should be done periodically, and lockbox business should not be automatically given to a local bank.
Depending on the amount of business going through your lockbox, more than one location may be desirable. By implementing cash management tools that allow you to better track accounts receivable, you can create more efficiency throughout your business, saving you and your employees time.
Whether it's through paper checks or electronic payments, the easier you make it for your customers to pay you, the faster you will get your money. We can help you simplify your collections process. Contact us to get started. The website you are about to enter is not operated by City National Bank.
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Please cite source when quoting. All Rights Reserved. Manage Finances Business. Accounts are broken out by the number of days since the invoice was issued, such as: days days days more than 90 days The report also lists the amounts due.
First, it is difficult to decide on suitable discount terms. If the discount is made attractive to customers it is likely to be too costly to the company, whereas if the discount is not too costly to the company it is unlikely to be attractive to many customers. Second, the introduction of such a discount will make the management of the sales ledger more complex and costly to run and is likely to make the budgeting of receipts from customers more difficult, as the company could not be sure whether the discount will or will not be taken.
The final — and in reality very often the biggest — problem is that all too often customers will abuse the discount by taking it despite not paying early. When this occurs, the company is left to decide between spending time and effort recovering what is often a small amount, or writing the discount off and encouraging such behaviour. Obviously, neither of these options is attractive.
Melvin Co is considering the introduction of an early settlement discount at the same time as extending their standard credit terms to 50 days. Suggested approach In some questions of this nature it may be worth doing some preliminary calculations. In this case, the calculation of credit sales and the anticipated increase in sales would be worth evaluating:. Having carried out any preliminary calculations, an annual cost and benefit table should be constructed and each cost or benefit should be evaluated and put into the table.
The important annual benefit, and always the one that is hardest to calculate, is the annual finance saving on reduced receivables as the overdraft will have been reduced and hence an interest saving will arise. I suggest that you leave this calculation to last as it is best to calculate the other costs and benefits first to obtain the easy marks.
The second benefit to Melvin Co will be the contribution earned on the extra sales. The calculations carried out so far are relatively straightforward and can be shown on the face of the cost and benefit table.
Hence, prior to calculating the annual interest saving on the reduced receivables, the cost and benefit table should be as follows:. Note: receivables have not yet been received, so they make the overdraft higher than it would otherwise be, and so incur an interest cost. Note: the new receivable days are simply an average of the credit period taken by customers taking the discount, and the credit period taken by those refusing the discount weighted by the proportion of customers taking and refusing the discount respectively.
Note: remember to use the revised credit sales.
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