Many businesses fall into the financial trap of focusing on profits rather than cash flow. But while cash is still king, businesses must shift some of their financial focus to working capital management — because that’s what keeps your business on the path to scalable growth.
Working capital management aims to decrease the amount of time it takes to receive cash after a sale, or days sales outstanding (DSO). One of the most common causes of extended DSO is uncollected sales. In fact, according to a study of 27,000 companies around the world, DSO averages 64 days. Meanwhile, 25% of businesses wait 88 days or more to receive payment.
Fortunately, there are several ways to increase cash flow and ensure that your business gets paid in a timely manner. From implementing Credit as a Service® (CaaS) to providing multiple payment options, identifying ways to minimize DSO can eliminate many of the challenges that result from restricted cash flow.
In the end, both buyers and sellers want a frictionless payments experience that keeps up with evolving expectations inspired by B2C purchasing — an online alternative payment method that offers speed, convenience and personalization such as net terms. With over 80% of B2B buyers agreeing that their personal buying experiences impact their expectations for business purchases, how can B2B businesses hope to keep up and continue driving growth? The secret lies in a frictionless, alternative payment solution with the following features:
- Extend terms to buyers: Eliminate the source of excessive DSO (i.e., the payment itself) with a solution that generates invoices and extends credit to buyers on your behalf, risk-free — and with payment in as few days as possible. The result is not only more reliable working capital, but increased share of wallet and loyalty from buyers, which translates to increased cash flow. A whopping 82% of B2B buyers would choose a vendor over others if that vendor offered invoicing at checkout with 30-, 60- or 90-day terms, and 74% of B2B buyers presented with the option of paying by invoice buy more products or services. Net terms provide greater purchasing flexibility when cash is short. This boost in purchasing power motivates buyers to buy more products and services, paving the way for repeat business.
- Speed up AR processes: Outsource AR processes like underwriting, onboarding, invoice submission, matching remittance information, reconciliation and collections. By outsourcing certain processes, you empower your AR teams to handle an influx of new business without sacrificing efficiency. They can then focus the rest of their time on more critical tasks. And a solution with accounts receivable automation can reduce DSO and speed up your order to cash processes with features like auto-decisioning and electronic invoices.
- Incentivize buyers: To increase cash flow and ensure buyers pay on time — or even better, early — offer quality incentives. Motivate buyers to settle invoices early by offering discounts and communicating the potential for late fees on past due payments. For example, if a buyer is paying on net terms, reward early payments by giving a discount to those who pay within a week or 10 days. Whether it’s discounting the current purchase or offering to take 10% off the next one, rewarding buyers who are on top of their invoices incentivizes them to pay on time, and earns their appreciation and loyalty in the long run.
- Offer multiple payment options: It’s critical to make payment possible using buyers’ preferred payment options. If buyers aren’t presented with their preferred payment method, it might take longer for them to pay, further extending DSO. In fact, 48% of B2B buyers have not completed a purchase because their preferred payment method wasn’t an option. Tailor the payments experience to buyer expectations with options that work best for how they run their businesses. Offer multiple payment options beyond just credit cards, such as paying on net terms and digital invoicing — and ensure that these methods are consistent across all channels: 98% of B2B buyers believe it’s important to have the same purchasing experiences across all channels, which includes in-store, sales, online and by phone.
Smart Working Capital Management Leads to Long-Term Loyalty
Implementing even one of these four strategies can lead to dramatic reductions in DSO and improvements in cash flow. Since payment inefficiencies often affect the customer experience down the line, a shorter, omni-channel purchasing process that meets buyer expectations also has the potential to increase loyalty and repeat purchases.
A fast and convenient payments experience — for both buyers and sellers — helps B2B businesses stay ahead of the competition, surpassing competitors that are bogged down by inefficient AR processes, inferior credit programs and poor working capital management.
We understand the needs and preferences of B2B buyers — and we’re ready to help grow your business. With a partner like MSTS, you can shift your focus away from tedious tasks toward increasing cash flow while we handle the back-end processes and credit extensions that support a seamless B2B payments experience.
Ready to learn more? Contact us today to see what Credit as a Service can do for your business.