Paralysis by Analysis: The CFO and AR Management - Funding Gates Blog
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Paralysis by Analysis: The CFO and AR Management


The so-called “centipede effect” happens when a normally unconscious activity is disrupted by consciousness of it or reflection on it—a golfer thinking too closely about her swing, or a businessman devoting too much thought to how to tie a tie. Sometimes, over-analysis finds the performance of even the most mundane tasks impaired, or rendered impossible completely. It’s an effect that is identified by many CFO’s who have difficulty with AR Management.

A centipede was happy–quite!
Until a toad in fun
Said, “Pray, which leg moves after which?”
This raised her doubts to such a pitch,
She fell exhausted in the ditch
Not knowing how to run


There’s a Problem?

Amid long-term financial planning, strategic development, and business expanding, the naïve CFO often takes for granted that accounts receivable is cash that is already in the books.

But cash flow is a delicate cycle. If a business isn’t getting paid on time, the CFO won’t have the cash needed to cover expenses, or navigate opportunities to expand. Unfortunately, it’s a lesson often learned the hard way by C-level executives who assume that AR management is a process best set to auto-pilot.

When overdue invoices start to mount, the prospect of cleaning up the accounts receivable process can feel like an overwhelming task; The CFO lacking a software solution risks entering analysis-overdrive.

Over-Analyzing AR Management

There are a few key tenants to effective cash flow management, but a even the simplest of guidelines can feel daunting when they require big-picture scrutiny. Here, we examine how a few of those guidelines can feel overwhelming when lacking the right tools.

1. Base Forecasts Off of Actual Customer Behavior
While it’s hard to know how a new customer will behave, repeat customers often have a payment pattern. Are they usually on time or consistently late? Do they pay small invoices on time and large invoices never? Do they use stall-tactics like querying invoices, or frequently claiming they never received the invoice? It follows that identifying these customers will help the CFO accurately predict cash flow. But there’s a catch: without the right tools, the CFO might risk plummeting into “Excel hell” while trying to figure out whom to target. Quickbooks and Excel often lack the sophistication and functionality needed to get an accurate snapshot of the most red-flag customers. A software solution that allows users to view the customer’s paying history in one snapshot is an easy way to avoid “paralysis by analysis.”

2. Monitor and Measure to Improve Receivables Performance
Monitoring and measuring receivables performance is a proven way for CFOs to increase cash flow. Sounds easy enough. But when relying on spreadsheets and ERP to manage AR data, gathering this information and analyzing can be extremely time consuming. Furthermore, it can be difficult to determine just which metrics should be used when measuring performance and improvement in accounts receivables. Is it best to measure Days Sales Outstanding (DSO)? Average Days Delinquent (ADD)? Collection Effectiveness Index (CEI)? With the help of a receivables software solution, some of the most important metrics can be calculated and analyzed with a single click; The CFO can better gauge the health of his accounts receivables and overall cashflow without feeling overburdened by crunching the numbers.

3. Communicate Often
The delinquent customer will forever remain delinquent without the occasional reminder. But figuring out just which customers are due for a followup can be a time-consuming process when CFOs are tasked with sorting through invoices piecemeal. Furthermore, the follow-up process–gathering all related information and invoices, tracking down contact information, reviewing notes from previous conversations–can quickly eat up hours when the process is not streamlined. A system that is designed to centralize the information and save email templates to specific accounts will ultimately save the CFO time in deciding whom to target, and how.

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