As companies struggle to boost profits in the wake of the recession, many are trying to optimize their accounts payable and accounts receivable processes to ensure that no payments are lost due to errors.
Some CFOs are turning to receivables-based funding, which includes asset-based loans, factoring (i.e. when a company sells its invoices), and other related credit mechanisms, as a source of quick cash, CFO magazine reports. Another option is to auction off receivables in an electronic marketplace, such as The Receivables Exchange. This platform allows companies to post outstanding invoices, determine the going rate, and then allow anonymous buyers to bid on them.
Although auctioning outstanding receivables can help a company recover some profit, prevention is the best course of action to limit the number of aging receivables. Pam Krank, president of The Credit Department, told the source that using auction services costs 10 to 20 times more that it would to improve processes internally. If a company doles out credit liberally, it needs to be conservative on collections, she notes.
Not only can a company save money by improving its accounts receivable process, it can also conduct a recovery audit of its accounts payable department to ensure that all lost payments are recouped.