A First Tennessee commercial banker recently shared a story of a local business using technology to cut costs. He recalled an experience with a plumbing contractor who performed a repair at the banker’s home. After completing the repair, instead of writing out an invoice on paper, the contractor pulled out an iPad equipped with a card reader so the banker could pay him with a credit card on the spot.

This transaction was certainly more convenient and less costly for the banker than mailing a check, and it also accelerated the contractor’s cash flow -- saving him the time and costs of creating and/or mailing a paper invoice.

Not just independent contractors, but businesses of all types can accelerate their cash flow by implementing electronic payment methods.

Electronic invoicing and receivables

The first step in accelerating cash flow is to reduce the amount of time it takes for payments to enter your accounts. Shifting to electronic invoicing can decrease collection times while also saving money and effort spent generating and processing invoices.

Accepting credit or purchasing card payments from customers, whether through an e-invoice, a payment terminal or simply through your business’s website, guarantees your business those funds, reducing the risk of late or insufficient funds from a check.

Automated Clearing House (ACH) credits also eliminate this risk and offer electronic convenience and automation. Types of ACH credits include automated payroll deposit, vendor payments, and online banking transfers. A key benefit of accepting payment through ACH credits is that funds are available to your business in about a day.

Regardless of the payment method your customers choose, both credit card and ACH credits can reduce your business’s paper, printing and postage costs.

Electronic payment options

For paying your bills, paying with a purchasing or credit card allows your suppliers and vendors to receive payment immediately, whereas you can hang on to cash for as long as 55 days before the credit card bill has to be paid. Another incentive: Some cards offer rebates, which can increase depending on how much the business spends.

Consolidating payments to purchasing or credit cards also saves time by offering better oversight into spending, rather than just tracking when checks were issued and cashed. Through the card company’s website, you can analyze spending trends over time and visualize periods when more cash is available for investment.

ACH debit payments are still a more convenient option than check writing if the vendor will not accept a credit/purchasing card. With ACH debit transactions, however, you should be aware of when payments are actually remitted and should set a dedicated day for recurring ACH transactions.

Go with the flow

Removing paper checks and postal mail is a win-win for your customers and for the bills you need to pay, but accelerating cash flow is also an important goal for growing businesses.

Measuring the length of time it takes to collect for your products or services, as well as to pay vendors, should offer insight into process changes to improve accounts payable and receivable, which can help you build a more profitable business overall.

Understanding the payment cycle

  • Your company may want to conduct a detailed cash flow analysis before implementing accounts payable and receivable changes.
  • To guide decision making about process changes, determine how long it takes your company to invoice and collect as well as the length of time before your company pays suppliers and vendors.
  • While performing this analysis, you may also want to analyze business processes to identify other opportunities to increase available cash. For example, does your company have excessive raw material or finished product inventory levels when those funds could have been saved, invested or used to pay down debt? Likewise, service-based companies may want to consider tightening some of their credit policies to encourage customers to pay more promptly.
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