Managing A/R and A/P During COVID-19

COVID-19 is having a tremendous negative impact on most businesses regardless of size and location. Many small-to-medium businesses are especially struggling to manage A/R and A/P as their customers struggle to maintain cash liquidities while revenues shrink and vendors demand stricter payment arrangements. In many cases, employers are now focusing on protecting their workforce and managing their working capital.

To navigate turbulent times, the past few months have clarified some universal best practices and guidelines of A/R and A/P management:

A/R Best Practices

  • Analyze your current and overdue A/R in detail. Discover risks and potential gaps in market disruptions to potential collection from your customers
  • Establish more regular correspondence with customers and their A/P departments; while obviously not as beneficial as payments received on time, knowing when to expect inflows can be useful information
  • Underline payment retainers in new contracts
  • Emphasize getting paid via ACH vs physical check
  • Offer payment discounts and plans that work for you and your customers
  • Bring upper management and other important stakeholders into the collection discussion

A/P Best Practices

  • Analyze your current and overdue A/P as well as your working capital in detail. Prioritize vendors based on the importance of services provided, amounts owed, and discounted payment offers
  • Reduce expenditures where possible; for many businesses, areas of office spend like copy paper and food and drink have instantly gone away thanks to work from home policies
  • Work with Vendors to make changes to Net Terms as needed
  • Ask for payment discounts where relevant
  • Involve upper management in making payment decisions, especially those of higher amounts

Along with some of these suggestions, it is important to utilize sound cash forecasting to find cash flow gaps for the foreseeable future. Coupled with an analysis of current contracts, current sales, and demand forecast for your products and services will help complete the picture that a sound A/R and A/P management strategy will provide as effectively as possible through the unpredictability that COVID-19 poses.

For further discussion, contact Arber Ajeti at aajeti@wcapra.com.