The Art of Getting Paid: Essential Strategies for Effective Accounts Receivable Management
Late payments are a silent thief, stealing your cash flow and corking your company's ability to thrive. Wineries and CPG companies are seasonal, volatile, and cash-intensive, so timely payments are fundamental to long-term success.
Timely payments keep your operations running smoothly so you can keep making investments in new opportunities, equipment, and marketing efforts. Accounts repayable management doesn’t take care of itself. Keep reading to tap into our expert insights on accounts receivable management strategies.
Understanding Accounts Receivable Management
Accounts receivable management includes processes to track, collect, and manage customer payments. Wineries often invest heavily in labor, raw materials, and equipment months before they see revenue from bottle sales. Likewise, CPG companies have significant upfront costs related to production and packaging. Both business models are cash-intensive.
Healthy cash flow means having access to funds so you can get good loan terms and spend as needed. By keeping your cash conversion cycle — the time it takes to convert investments into cash — short, you maintain healthy cash flow to reinvest in your business and weather seasonal peaks and troughs.
Inconsistent payment terms and lack of follow-up on overdue accounts are common issues that lead to prolonged outstanding payments and increased risk of bad debt. Without a structured approach, wineries and CPG companies might struggle to keep track of overdue invoices and fail to follow up effectively.
Standardizing AR practices lets you fund operations and invest in new barrels and territories. Plus, getting paid on time helps you avoid borrowing at high interest rates and focus on adding a new tasting room or expanding distribution.
Accounts Receivable Best Practices
Let's look at some best practices to help you improve AR management:
Making it easy for customers to pay
Timely invoicing
Regular follow-ups
Properly applying payments in QuickBooks Online (QBO)
Making It Easy for Customers to Pay
Simplifying payment processes can encourage timely payments and improve cash flow. Offering multiple payment options, clear instructions, and convenient payment portals can remove barriers and speed up the payment process.
Offer Multiple Payment Options
Providing various payment methods caters to different customer preferences. Options such as credit/debit cards, ACH transfers, and digital wallets make it convenient for customers to pay promptly. For example, a winery can use a platform like Bill.com to offer diverse payment methods, enhancing customer satisfaction and accelerating payments.
Reducing Days AR
Reducing days sales outstanding (DSO) can significantly improve cash flow. For example, if a winery with an annual revenue of $2 million reduces its DSO from 45 days to 30 days, the calculation would be:
Daily sales = $2,000,000 / 365 ≈ $5,479.45
Cash flow improvement = Daily Sales × (Old DSO − New DSO)
Cash flow improvement ≈ $5,479.45 × (45 − 30) ≈ $82,191.78
Reducing the DSO by 15 days frees up a staggering $82,191.78 in cash flow for that year. Implementing payment solutions that charge a 1%-3% fee might seem costly at face value, but the benefits outweigh the costs. Say the same winery reduces its DSO by $82,191.78, assuming a 2% fee, they would still free up substantial cash flow:
Cost = $2,000,000 × 0.02 = $40,000
Net cash flow improvement = $82,191.78 - $40,000 = $42,191.78
Clear Instructions
Make sure payment instructions are simple and easy to follow. Include all necessary details on invoices to avoid confusion and delays. For instance, specify the due date, acceptable payment methods, and any relevant account information.
Convenient Payment Portals
Using online payment portals allows customers to pay invoices quickly and securely. Implementing such portals can reduce payment delays and improve cash flow management. For instance, wineries can integrate payment portals with their invoicing systems, providing a seamless payment experience for their customers.
Setting Clear Payment Terms
Establishing clear payment terms is foundational for effective AR management. Specify due dates explicitly. Instead of saying "net 30," clarify it as "payment due 30 days from the invoice date." Clarity minimizes misunderstandings and ensures customers are aware of their obligations. For winery owners, clear terms help manage the influx of payments during peak seasons, avoiding cash flow disruptions.
Timely Invoicing
Immediately after completing a sale, generate and dispatch the invoice. Any delay can result in cash flow disruptions, especially during high-spending periods like harvest and bottling seasons. Using automated invoicing systems, like those offered by QuickBooks Online or Bill.com, streamlines this process. These tools automatically send invoices without manual intervention, ensuring that billing remains consistent and timely.
Regular Follow-Ups
Consistent follow-ups on outstanding invoices might feel pushy, but that's how you get paid on time. Implement a follow-up schedule that includes emails, calls, and personal reminders. For example, if a payment is a week overdue, a friendly reminder email can prompt action. After 2 weeks, making a phone call might be more effective.
Personal relationships with clients underpin your entire operation, and maintaining a respectful yet persistent follow-up routine preserves these relationships while securing timely payments.
Properly Applying Payments in QBO
Here's a straightforward guide to applying payments in QBO.
Log in and access payments:
Open QuickBooks Online and head to the “Sales” tab.
Click on “Receive Payments.”
Select the customer and invoice:
Choose the customer who has made the payment.
Tick the invoice that matches the payment. This step helps you track every sale correctly, especially during peak seasons when transactions are frequent.
Enter payment details:
Fill in the payment amount.
Pick the payment method, whether it’s bank transfer, credit card, or cash. Accurate tracking of different payment methods helps keep your cash flow tight.
Save the payment:
Double-check the details to make sure everything matches up.
Hit “Save and Close” to finalize the transaction.
For peace of mind, consider outsourcing AR management to our team of experts here at Balanced Business Group. We have specialized knowledge and a wealth of experience in the wine and wider CPG industry to help you maintain healthy cash flow and keep your relationship with clients focused on your passion for wine.
Accounts Receivable Management Strategies
Here are some more tips for effective AR management.
Offering Early Payment Discounts
Give your customers a small incentive to pay their invoices early, and you can significantly speed up the cash cycle.
You might give a 2% discount if they pay invoices within 10 days and 5% for payments received within 2 days. Make sure terms are crystal clear on your invoices so there's no confusion. Even if you add a note, be sure to communicate this benefit to your customers upfront during a tasting session and via email marketing.
To automate the process, enter discount terms into QuickBooks Online. The result? A win-win situation where customers save money and you improve your cash flow, keeping your winery operations smooth and steady.
Conducting Regular AR Audits
Regular AR audits are like a routine health checkup for your winery’s finances. They help you catch errors early and keep your records accurate, which is fundamental to making smart business decisions.
To conduct AR audits, set a consistent monthly or quarterly schedule. Generate detailed reports from your accounting software and compare them with your records. Look for any inconsistencies or outstanding invoices. Keeping your documentation organized will make the audit process smoother, letting you focus more on producing excellent cabernets and chardonnays.
Top Tools for Accounts Receivable Management
Selecting the right AR management software streamlines your operation and boosts cash flow. Let’s look at some tools designed for the intricacies of AR for CPG companies.
QuickBooks Online
QuickBooks Online is a go-to for many microbreweries and boutique wineries with fewer than five employees due to its ease of use and comprehensive features.
Key Features:
Automated invoicing and payment reminders
Expense tracking and financial reporting
Integration with various financial tools and platforms
Customizable invoicing templates
Multi-currency support
QuickBooks Online starts at $25 per month.
Cin7
Cin7 excels in managing inventory and sales channels, making it a great fit for businesses with complex needs.
Key Features:
Automated invoicing and payment tracking
Integration with accounting software and e-commerce platforms
Real-time inventory management
Detailed sales and financial reporting
Multi-warehouse management
Cin7 pricing starts at $349 per month.
Bill.com
Bill.com simplifies the AR process with a focus on automation and detailed reporting customized for wineries and CPG companies.
Key Features:
Automated invoicing and payment reminders
Detailed financial reporting
Integration with major accounting software
No charge for payments between your business and other Bill.com users
Secure, cloud-based platform
Bill.com’s pricing starts at $45 per user per month.
Optimizing Accounts Receivable Management for Success
Managing AR is time-consuming and complex. Powerful tools, such as QuickBooks Online, Cin7, and Bill.com, streamline your AR processes, automate tasks, and provide valuable data-driven insights.
Balanced Business Group offers personalized financial management consulting services to help you implement effective accounts receivable management strategies and unlock as much cash flow as possible.
Explore the BBG blog for more resources on winery and CPG company management, and contact us for personalized consulting services to optimize your cash flow.
