If you want to prepare your business for a recession, the first step you should take as a business owner is to check in with your financial team. According to a study by the Gartner Group, a 5% reduction in operating costs can have the same P&L impact as a 30% increase in sales. In other words, that’s a pretty significant way to shore up your finances. Your financial team will likely know where the inefficiencies are hitting the bottom line.
In any economic environment, even little inefficiencies add up and significantly impact cash flow. In an economic downturn, these gaps are particularly critical areas to examine. Look at the time spent by your team on redundant operations and processes and watch for indications that they’re being stretched thin by a lack of organization.
So, what are the signs that you have some inefficiencies in your accounts receivable and accounts payable processes? First, check out how quickly your customers are paying. Is your DSO increasing? Is it taking longer and longer to capture your revenue? Then, compare the trend over the last year or two to get a clear picture of the landscape.
Often, accounting is a thankless job. Business owners often assume that a financial slump means that their team needs to send out invoices faster or be more diligent about collections. But the truth is, if you aren’t putting the right systems in place to help customers pay easily and conveniently, customers will be slower to pay, regardless of how hard your team works. Keep the pressure on your team, and they will likely burn out.
An estimated 40-50% of B2B payments are still made via check. Even if your customers are comfortable with their preferred payment methods, offering them multiple ways to pay their invoices is advantageous for all parties. Businesses in the manufacturing and distribution services sectors are often a little slower to let go of paper and implement operational efficiencies. You can help them by ensuring that you have easy, convenient payment options and methods in place.
Other areas of your accounting to examine? Look at the manual tasks that are overtaxing your team. Do you have dedicated people for data entry? Are team members working to input invoice data for suppliers? Crossing over to automated systems can be intimidating (especially if you’re concerned about investing in operations), but it’s something that can save you in the long run. Ultimately, the effort is always a worthy investment.
Examine your reporting too. Do you have access to the reports you need? Do all your financial and reporting systems work well collectively? Often, business owners find they can’t get the data they need because several processes and systems are piecemealed together. Business owners should always be able to quickly look at their dashboard, P&L, and financial data and know exactly where the company stands. If it takes time to correlate the moving parts, it indicates a problem with your process.
Are you waiting on manual entry? Are you looking through multiple points, trying to cobble together data across disjointed systems? If we are heading into an economic downturn, the time to increase efficiencies and streamline financial procedures is now—don’t wait until we’re amidst a recession to prepare your company.
Touch it Once
Redundancies in financial operations are a significant problem for many businesses. Each time someone engages in data entry and manual processes, you’re opening your company up to human error in your accounts receivables and accounts payable.
The more times a piece of data is touched, the more likely it is to end up in error. IBM discovered that bad data costs the U.S. economy $3.1 trillion annually due to inefficiencies and mistakes.
In the manufacturing and distribution space particularly, we frequently see errors and inefficiencies become a problem. Mechanics, plumbers, and HVAC workers all veer toward paperwork and manual entry.
Because these jobs are highly skilled and require a constant focus on serving the customer, operational updates and efficiencies often fall by the wayside. It’s not necessarily that these industries don’t like technology, but more that they don’t have the time to learn new systems and worry about updating their manual processes.
But in these industries, there are a lot of payment touchpoints. Paper invoices, checks, and manual data entry can lead to mistakes and errors. Even when employees go to retail locations to purchase items, they often operate with cash or checks. At best, some do ACH transactions.
On the AP side of operations, often, suppliers want an EDI format for invoices. Work orders can be on a different system. When terminals aren’t integrated, mistakes can be a huge hassle. Make one mistake on a machine, and accounting is facing a massive headache. Ask anyone in the accounting department, and they’ll likely tell you it’s a LOT to organize.
Anything business owners can do to streamline operations will help prepare the company for a recession or any economic uncertainty. Not only will it boost the efficiency of operations, but it will likely boost your team’s morale too.
Payment automation tools are a sound investment to help customers pay quickly and efficiently. In addition, they can help business owners stay on track with an easy-to-access financial picture at a glance. Even better, they can help finance teams stay organized and avoid burnout.
Give Your Customers What They Need to Help You Prepare for a Recession
Customers need to be able to receive, find, and process your invoices easily. They need multiple options to help them pay. They need to be able to examine the data and securely pay when they’re ready.
Explore payment solutions to encourage your customers to pay their invoices fully and timely. Choose one with a customer portal that allows them to access their invoices and makes payments super easy. They don’t need to call accounting to find their invoice. Moreover, the process is secure because the customer makes the transaction themselves.
Clients appreciate security and convenience when it comes to making payments. When they feel that those points are met, they’ll pay faster. Invoices don’t get misplaced and overlooked. They can access what they need when they need to know.
By reducing the manual tasks for your accounting team and streamlining payments, you’ll reduce your operating costs. As a result, you’ll help make your financial team more efficient and give customers the option to pay in a way that works for everyone.
Payment acceleration platforms help companies manage their cash flow. Because you get paid easily, you reduce the costs associated with manual tasks. As a result, your financial team will have more time for meaningful activities that help your company run efficiently and strategically.
When you have access to payment data, you can quickly see where money is going and stop any gaps in the system. The reporting can help you see the effects of inflation, increasing costs, overpayments, and more.
You’ll see what areas of your company could use attention, and the accurate data and information will help you make those critical decisions. You must consider your collection practices if you’re preparing your company for a recession or an economic slump. How are you automating the collection process? When finances get tight for customers, the squeaky wheel gets the attention. Offering reminders, phone calls, and automated emails can help keep your payments at the forefront of their mind.
On your AP side, look at early payment discounts. See what invoices are being paid and if there is a way you can work out options to help you save. Anything to automate data and avoid manual entry will cut costs significantly.
A technology company we recently worked with had its accounting software pulling from an old database. We were able to integrate with their current system and implement a basic payment workflow. As a result, they could send out electronic invoices, work through a customer portal and streamline their operations. They saved significantly in time and cost of operations within a short time after implementation. As with many of our customers, they saw a 20-30% cost reduction on payment automation alone.
When you work with a payment company, ensure they’re the best fit. Look at your pain points and make sure that it integrates with the current technology. Find technology that complements your current accounting system and helps you run more efficiently.
There’s no better way to prepare your company for a recession than to simplify and modernize your financial processes.
This article was first published as part of an e-Book
John Contogiannis, B2B Payments and Fintech Expert at Fuze. John helps businesses shore up their processing solutions,making it simple and efficient to get money in the door when needed. Fuze is a business service provider on ShapeConnect, a B2B matching marketplace assisting companies with the selection of software and services to solve challenges and drive growth.
Invoices stock image by Andrey_Popov/Shutterstock