It's easy to see the benefit of collecting on accounts receivable that your firm otherwise wouldn't collect. If you improve your processes, and your collection rate goes from 75% to 85%, that's more revenue and more profit for your firm. But what's less obvious is the impact of collecting faster.
Let's say your firm has $50,000 in accounts receivable, and you typically collect that on average in thirty days. What would be the impact of improving your collections process and reducing your average collection time down to fifteen days? Either way, you are gaining $50,000 in revenue, right?
The difference between profit and cash is an important distinction and one that can cause problems that sneak up on businesses owners. Issues like missed payroll, low distributions and an inability to reinvest in the business may not be profitability problems. Many profitable businesses have gone under because they ran out of cash. To learn more about the impact of collection times on your firm's financials, see the Real Cost of Accounts Receivable.