28 Feb 10 Account Receivable Facts: Every B2B Company To Know
Accounts Receivable Management plays a significant role in shaping your business and is responsible for making sure your company gets paid for its goods and services. A company with effective accounts receivable management is like a well-oiled machine and can enhance communication with customers and get the company paid fast. On the other hand, inefficient accounts receivable management can always leads to wastage of company’s working capital. Hence, you need an effective way to deal with slow or non-paying customers; otherwise outstanding receivables will snowball out of control.
Due to the extended lockdown, most of the b2b companies have been impacted with reduced cash flow. Given the costs of making, printing, and sending paper invoices, it’s clear to see how accounts receivable departments consume a significant portion of a company’s budget: up to 2% of total revenue. Furthermore, two-thirds of a company’s budget consumes by accounts receivable processes and its operations.
Given Kenstone Capital experience working with various B2B companies and studying various nation-wide reports, we understand – it is crucial to know about accounts receivable facts to manage it better. Here are 10 facts about accounts receivable management that show the value of optimizing your accounts receivable.
- Most of the medium to large enterprises extended relaxed payment terms. The Average Days Sales Outstanding (DSO) in India is close to 70 days.
- India has the highest DSO in Asia Pacific region. On an average, total 55% of B2B invoices in India were reported to be paid late. ( Atradius )
- 61% of late payments are due to various compliance and administrative problems such as incorrect invoices or receiving the invoice too late to process payment on established credit terms ( Credit Research Foundation )
- 27% of Financial executives stated that customers didn’t pay their debts on time because they either didn’t have the money or they were unable to contact the customer to resolve the issue ( CFO.com )
- 26% of invoices are uncollectable due to 3 months old. This increases to 70% uncollectable invoices at six months and 90% uncollectable at 12 months.
- In India 94% of respondents reported late payment of invoices by domestic and foreign B2B customers ( Atradius )
- 60% customers pay on time or around due date because they were reminded and their invoices related issues were resolved in early time.
- 2 out of 5 Indian suppliers wrote off their receivables as uncollectable due to high collection costs ( Atradius )
- Across various industries, with 2.7% to 4% of topline being uncollectable, India is one country with highest proportion of B2B receivables written off as uncollectable.
- As a consequence of late payments done by B2B customers, 45% of India suppliers had to take specific measures to correct cash flow. ( Atradius )
All of these statistics point to central theme –“late payments from customers”. To avoid these types of situations, businesses must speed up process and establish strategies to remind customers about their payments. An effective way for companies to ensure all these tasks get done is to adapt better accounts receivable processes that deal with this reality.
One of the reasons limiting your businesses from being paid on time is manual processes. Hence, by digitizing and automating your accounts receivable processes, you can reduce the time it takes to get paid on average. We at Kenstone Capital recently launched – an automated software solution for account receivables which can remove all the common obstacles that prevent today’s businesses from collecting receivables in a timely manner. From invoice delivery to cash application, our AR solution automates the areas of account receivable management that matter most to your business.
Ultimately, improving accounts receivable not only reduces average payment time and improves cash flow, but it also improves customer satisfaction. By investing less time on manual, repetitive tasks, accounts receivable staff may invest more time on higher-value activities and put more effort in building effective customer relations.