What Accounts Receivables does for Agencies

As someone not part of an agency's finance department, have you ever wondered how numbers can impact your agency’s success? Accounts receivable (AR) might not sound exciting, but it’s essential for your agency’s financial health. So, let’s explore how managing AR effectively can boost cash flow, strengthen client relationships, and improve your agency’s performance. Ready to unlock your agency’s full potential? Let’s begin.

What is Accounts Receivable?

Accounts receivable is the money clients owe an agency for its services. Simply put, it’s like the bill clients must pay after the agency has done work for them, such as creating ads or managing marketing campaigns.

AR is important for agencies because it directly affects their financial health. When clients pay their bills on time, the agency has enough money to cover expenses, hire skilled employees, and invest in new projects. By managing effectively, an agency can ensure a steady cash flow, which is crucial for its success and growth.

Accounts Receivable in Your Agency's Balance Sheet

Where are accounts receivable on the balance sheet?

Your agency's balance sheet lists account receivable under the current assets section. This is because they represent money that clients owe the agency, which the agency usually expects to collect within a brief period, usually within a year. Therefore, accounts receivable as a current asset help prove an agency's ability to meet short-term financial obligations.

How does AR impact your agency's financial health?

Effectively managing accounts receivable directly influences your agency's cash flow, working capital, and liquidity. Proper AR management enables anyone to make informed decisions and maintain financial stability. Agencies with a robust AR management system can quickly address economic challenges and capitalise on new opportunities, leading to long-term growth and success.

What are the Benefits of Accounting Receivable Management?

Enhancing Cash Flow

Efficient AR management, including timely invoicing and payment collection, helps maintain a healthy cash flow. This ensures that an agency can meet financial obligations and invest in new projects, equipment, and talent, driving growth and innovation.

Automation helps speed up the invoicing and payment collection processes, leading to faster payment turnaround times. This improvement directly impacts your agency's cash flow, ensuring you have the funds to meet financial obligations and invest in growth opportunities.

Building Stronger Client Relationships

Open and honest communication in billing helps build trust with clients. This leads to easier transactions and lasting relationships. In addition, good AR management lets agencies spot and fix payment issues early, keeping work relationships strong.

Gauging Agency Performance

Evaluating AR metrics and Key Performance Indicators (KPIs) is vital to understanding your agency's financial performance and uncovering areas for improvement and growth. Furthermore, you can evaluate your agency's performance and set specific improvement objectives by measuring these metrics against industry standards.

In an upcoming section, we'll explore AR metrics and KPIs your agency should track, offering tips for analysing and comparing them.

Improving Financial Stability

Your agency needs to take specific measures to ensure a secure financial future. These include implementing credit policies and conducting risk assessments. Doing so can reduce the risk of bad debts and write-offs. This approach also helps evaluate potential clients' creditworthiness and avoid high-risk projects. Overall, these steps will lead to a more stable and sustainable business.

Streamlining Operations

Leveraging technology to automate invoicing and payment processes saves time, reduces errors, and optimises your agency's resources. In addition, this automation frees up valuable time and resources for managers and their teams to focus on delivering exceptional work for clients, driving agency success.

Best Practices for Managing Accounts Receivable in an Agency

Effective AR management is essential for maintaining a healthy cash flow, enabling the agency to invest in talent, resources and new projects. It is vital for the agency’s financial stability and success.

Here are five best practices to consider when managing accounts receivable in your agency:

Implement transparent payment guidelines. Define and communicate payment terms in client contracts, minimising confusion or disputes later.
Assess AR aging reports consistently. Regularly assess these reports to detect overdue accounts, recognise patterns, and initiate actions to collect outstanding payments.
Provide diverse payment alternatives. Offer various payment methods, such as credit cards, electronic funds transfer (ETF), PayPal, or online payments, simplifying timely payments for clients.
Adopt a structured follow-up procedure. Efficient follow-ups are essential for AR management and maintaining a positive cash flow. Set up a monitoring system incorporating reminders, phone calls, and internal escalation.
Periodically evaluate and optimise your AR strategies. Consistently analyse the efficiency of your AR management practices and implement improvements to sustain a healthy cash flow and minimise overdue payments.

Adopt these strategies to free up time to deliver exceptional client results and ensure financial health.

The Importance of Training Your Team in Accounts Receivable Management

Cultivating a culture of monetary responsibility is essential for thriving agencies. A savvy team is vital for success, and this section will delve into nurturing a mindset centred on economic triumph. Discover actionable steps to develop a financially accountable culture, enhancing your agency’s resilience and ability to navigate challenges.

It is essential to involve your team in AR management training for the following reasons:

Encourage Team Accountability. Educate your team on the importance of AR, promoting ownership of client relationships and timely payments.
Maintain open and regular communication with clients. Equip your team with AR management training to ensure transparent communication with clients about invoicing and payment expectations, fostering trust and stronger relationships.
Enhance financial decision-making. An AR management-trained team can make well-informed financial decisions that contribute to your agency’s overall success and sustainability.
Foster Early detection and resolution of AR issues. A knowledgeable team can proactively identify and address potential AR problems, mitigating adverse effects on cash flow and client relationships.

Partnering with Pegasus Systems for AR management training can make a significant difference. Our technical team will work closely with you to identify your training goals and create a customised plan that suits your schedule and preferences, whether one-on-one group sessions or on-site or online training. This smooth transition to their software ensures your team reaps the full benefits of AR management training.

Unlocking the Potential of AR Management with Technology

Accounts Receivable Management Tool: Pegasus Systems

Managing accounts receivable (AR) is critical to any agency's success. Streamlining this process allows you to allocate more time and resources to growth and innovation. A great benefit of Pegasus Systems' primary product, Pegasus Edge, is that it lets you access financial data from anywhere. In addition, invoicing and email reminders are easy with its cloud-based setup.

Pegasus Edge automates repetitive tasks and integrates with other software. As a comprehensive solution, it covers the following:

Time and cost management
Job management
Various integrated functions to boost efficiency

Key features include time entry, production tools such as time and cost transactions, production invoices, order management, and over 15 tailored reporting tools for the production team. Users can access and analyse data anytime, ensuring informed decisions and the best performance.

Optimising Efficiency & Accuracy with Innovative Solutions

Implementing advanced technology solutions for AR management leads to substantial improvements in both efficiency and accuracy. Here’s a closer look at how technology plays a pivotal role in improving AR processes:

Minimising human error. Automate routine tasks to ensure consistency and eliminate manual data entry errors and missed deadlines.
Prompt client follow-ups. Use automated reminders that this technology offers for timely and consistent client communication, increasing the likelihood of on-time payments.
Centralised data management. Create a unique source of truth for financial information, improving decision-making and collaboration within the team.
Evaluate financial performance— Analyse key AR metrics with accounting software to optimise AR processes and maintain financial stability.

Monitor AR Metrics and Key Performance Indicators (KPIs)

As highlighted in "Gauging Agency Performance", we highlighted the significance of analysing AR metrics and KPIs for financial insights and growth. In the following section, we'll dive deeper into the indicators of success, tips for effective tracking and analysis, and how to benchmark against industry standards, helping optimise your agency's financial performance.

Essential AR Metrics and KPIs

Understanding and tracking Accounts Receivable (AR) metrics and Key Performance Indicators (KPIs) is crucial for success in agency finance. By closely monitoring these KPIs, you can optimise your cash flow and minimise unmanageable debt, driving your agency's financial success. Here are some of the most vital metrics to monitor, along with examples to help you better understand their importance:

Average Collection Time (Days Sales Outstanding - DSO). The speedometer of your cash flow, DSO, measures the average days to collect payment after a sale. A lower DSO indicates a shorter collection period and faster cash inflow. For instance, if your DSO is 30 days, it means that, on average, it takes 30 days to collect client payments.
Average Collection Period (ACP). ACP represents the average time it takes to collect payment on an invoice. Comparing ACP with your payment terms helps assess the effectiveness of your collection process. For example, if your payment terms are 45 days and your ACP is 60 days, it’s a sign that your collections need improvement.
Percentage of Bad Debt. This KPI reveals the proportion of uncollectible accounts to total sales. A lower ratio indicates healthier financial management. For example, if your total sales are $100,000 and your lousy debt amounts to $2,000, your percentage of bad debt would be 2%.

Monitor these essential AR metrics and KPIs to ensure your agency's financial health and maintain strong client relationships.

Tracking and Analysing AR Indicators

Establish a regular reporting schedule to monitor these indicators and use economic management software or tools to analyse data. Look for trends, such as increasing DSO or a higher percentage of a tax write-off, which may signal potential issues.

Benchmarking Against Industry Standards

Compare your agency's AR metrics and KPIs to industry benchmarks to evaluate your financial performance. This comparison helps identify areas where your agency excels or needs improvement. Then, set realistic goals based on these benchmarks and implement strategies to achieve them.

How Can Effective AR Management Transform Your Agency's Success?

Managing accounts receivable is crucial for your agency's financial stability and long-term prosperity. Evaluate your current AR practices, adopt best practices, train your team, and monitor essential metrics; you can optimise cash flow, foster strong client relationships, and improve financial stability.

Pegasus Systems is one of the most powerful tools to help your agency achieve these goals. As a top AR management tool, we automate everyday tasks, simplify processes, and blend smoothly with other software. Our solution offers a comprehensive approach to managing time, cost, and jobs, making work more accessible and helping you make better decisions.

Using Pegasus Systems and following the advice in this article will unlock your agency's potential, paving the way for ongoing growth and success. So, take the next step today and transform your agency's accounts receivable management.

How Accounts Receivable Influences Agency Value: a Non-Finance Guide