On an average, 90% of invoices in India are still handled manually and, 12% to 15% of them require a payment reminder. As a business takes more time to collect the receivables, the need to fill the cash crunch increases, thereby increasing the demand for working capital.
Account receivables is the money that an organization would get from their customers who have purchased goods or services on credit. Considered as a current asset on a company’s balance sheet, account receivables is one of the most critical and a crucial aspect of working capital requirements. However, what makes it pressing is:
- A delay in accounts receivables, will lead to a cash shortage as businesses need to pay their suppliers. This further leads to borrowing from lenders like banks, NBFCs, or other informal sources, which increases the cost of capital, leading to a decrease in profit.
- Businesses rely on income received from sales to pay off other expenses and operations of the company. However, in every industry, there’s some uncertainty that the debtors will not pay their dues. It can happen if debtors are under a severe liquidity crunch. An increase in bad debts leads to difficulty in paying business expenses like salaries to employees, payments to suppliers, etc.
Here’s what can happen with a mismanagement of accounts receivables:
- Increase in working capital requirement as the funds are blocked in receivables
- Increase in cost of borrowing money in the form of term loans, overdraft, etc.
- Cost of default because of bad debts
- Delay in account payables that can harm a firm’s valuable supplier relationship
How can BFM help to address the issues of accounts receivables?
- Automated follow-up reminders
With BFM, automated payment reminders are sent via SMS, Email, and WhatsApp to clients/customers, whose amount is due.
- Aging analysis of debtors
Aging analysis categorizes customers according to invoice overdue ranges. For e.g., BFM will show the invoices which are overdue for 30 days or less in one bracket, invoices that are overdue for 31-45 days in the next bracket, and so on. This will help SME owners build a better credit policy and assess the risk of payment falling into the NPA category.
- Average collection period
With just a click, BFM allows you to view the average collection period, which is the average time it takes for an organization to collect payment from its customers. BFM also keeps a check on the credit limit being crossed.
Are you struggling with late customer payments? Is your staff tired of continuously following-up?
Try BFM today! Integrate Tally with BFM and collect payments up to 20% faster with automated payment reminders.