- PE-backed CFOs must expertly manage receivables to optimize liquidity.
- Sluggish collections create a slew of cash management and reporting issues whose negative effects ripple throughout a business.
- Pinpointing AR issues requires strong communication between sales, billing, collections, and accounting.
- Reducing customer credit risk is often the quickest way to reduce days sales outstanding.
The operating velocity of a sponsor-backed environment magnifies AR inefficiencies. A quick cash conversion cycle reduces a company’s risk and maximizes its bandwidth. The PE-backed CFO must spearhead a proactive approach to collections and safeguard working capital.
Stagnant organizations consider DSO a fixed number; ignoring the many internal actions that can accelerate cash flow. To combat this, finance chiefs leverage several best practices to optimize AR.
Get Sales Invested in AR
CFOs can often quickly improve AR by evaluating the company’s credit policy. The creation and enforcement of stricter guidelines around customer credit terms will quickly reduce the level of risk tied up in delinquent accounts.
The sales team plays a crucial role in limiting credit risk and optimizing receivables.
A salesforce will often agree to short-sighted terms in the face of losing a sale. If left unchecked, this will generate numerous AR headaches – particularly in a sponsor-backed environment where there is often immense pressure to hit sales goals.
A finance executive at a mid-Atlantic manufacturing company discovered his sales team was occasionally setting terms that allowed customers to defer payment until the product was fully installed, tested, and proven to work. Customers took advantage of this ambiguity, inflating DSO. The executive minimized the use of these terms, reducing the number of invoices past due by over 10%.
CFOs must ensure the sales organization is aware of receivables metrics and invested in their improvement. AR efficiency will increase if sales buys in to this ownership of the broader business. A finance chief should...