Optimizing Cash Flows with Customer Payment Automation

Payment automation is an integrated solution that allows customers to make a variety of payments while minimizing human intervention. This is beneficial for organizations looking to eliminate error-prone tasks and limit the need for the manual reconciliation of these issues. According to a 2020 report from PYMNTS, about 70% of businesses have reported plans to utilize digital solutions to improve their accounts receivable processing.

The costs of manual AR are immensely underestimated by organizations, and payment automation can considerably simplify the process. Streamlining accounts receivable and largely removing manual activity has contributed to this rise in the use of electronic payments in recent years. Efficient automated payment solutions are a key aspect of optimizing cash flows for your business.

Increasing cash flow

Organizations are turning to automation tools, as they are not only more efficient but often more secure and capable of increasing cash flows. This added control and flexibility has been essential to increasing cash flows in the following ways.

Cheaper transactions

A manual approach to accounts receivable is time-consuming, but the automation of digital payments can reduce the costs of processing an invoice by 50%. It also accelerates the average time it takes to collect payments by 62%, ensuring timely payments and the elimination of late fees. Additionally, these electronic payments allow organizations to save money in terms of labor costs, which are generally what drive up these expenses.

Reduced errors

Manual errors are costly for businesses and time-consuming to correct. Customer payment automation captures and cross-checks information with a high degree of accuracy to reduce mistakes or duplicate payments.

Added security

AR automation is also an effective way to ensure fraud prevention. A 2021 AFP survey report on payments fraud states that 74% of organizations were targets of payment scams in 2020. While this percentage has slightly decreased in recent years, checks are still highly susceptible to scam attempts. This emphasizes the necessity of guarding your sensitive data with secure automated systems.

Increased cash flow visibility

Digitization of the customer payment process leads to increased visibility of your organization’s cash flows. A streamlined system provides thorough records that can be easily accessed and monitored, which is invaluable for gaining key insights into the state of your business. A thorough understanding of your organization’s finances can guide strategic plans for the future to optimize cash flows.

What is a cash flow analysis?

A cash flow analysis determines a company’s working capital, and, as a result, offers insight into the liquidity and solvency of the business. This process involves three different types of cash flows.

• Cash from operating activities represents cash received from the company’s core business ventures.
• Investing activities reflect the long-term or capital investments of an organization. These are non-current assets that are intended to produce a profit in the future.
• Cash flow from financing represents the debt, equity and dividend transactions between a firm and its owners, investors and creditors.

How to conduct a cash flow analysis

Step 1: Prepare your statement

To conduct a proper analysis, the first step involves creating your cash flow statement. This is possible after identifying all sources of income as well as all business expenses in the form of your operating, investing and financing activities.

Step 2: Aim for positive cash flow from operations

For organizations apart from non-profits, profit is the objective. When operating income exceeds net income, this is a strong signal that the company is on the right track to sustainable growth.

Step 3: Examine negative cash flows

This is not always a strong indicator that something is wrong, as long-term capital investments can offset these numbers. However, it’s essential to understand where this money is being allocated and its influence on your organization’s cash flows.

Step 4: Consider your free cash flow

After calculating operating and capital expenditures, you are left with your free cash flow. When free cash flow is positive, it indicates that a company is generating more than its spending, and this can be used as reinvestment to advance your business further.

Cash flow analysis gives your organization a better understanding of its current operations, which can be utilized to foster profitable growth.

Learn more about customer payment automation

While many organizations are turning to automation processes for efficiency, countless businesses are continuing to manage customer payments and other cash flow manually. This results in delayed payments, vulnerability to fraud and human error, whereas customer payment automation can provide a solution.

If your organization has started the digital transformation process, it’s essential to ensure you are using the most efficient automating system to optimize your organization’s cash flows. Increased cash flows and improved technology lead to more opportunities for your business to strategically invest in itself.

For more information on how SK Global can help you intelligently automate your accounts receivable, contact us today.