By Kim Koster, VP of Industry Marketing at Unanet
Maintaining healthy cash flow is a critical element for any business, but it’s particularly vital for government contractors due to the nature of our industry. Government contracts often involve lengthy payment cycles and stringent compliance requirements. That means your GovCon will want to have a reliable cash flow management process.
At its core, healthy cash flow ensures that your business can meet obligations, seize growth opportunities and maintain operational stability.
The role of automation in achieving this cannot be overstated. By automating your processes for how money comes in (accounts receivable) and goes out (accounts payable) of your business, you can increase your cash flow and strengthen your overall business.
Understanding Money In (Accounts Receivable)
Traditional accounts receivable, or AR, procedures — dependent on manual processes — often lead to high days sales outstanding, a.k.a. DSO, which is a significant issue in the industry. According to data from the 2023 GAUGE Report, an annual benchmarking survey of the GovCon industry, the average DSO for government contractors can range from 45 to 60 days. This delay ties up capital that could otherwise be used for growth or operational needs.
Automation offers a way out. Businesses that implement automated AR processes typically see a reduction in DSO of anywhere from 10–20 percent. Automated invoicing and reminders ensure that bills are sent out promptly and follow-ups are consistent. Expedient billing and diligent follow-up help you get paid quicker.
Understanding Automated AR Processes
For companies that leverage automation in their AR processes, the average DSO drops significantly. This is a testament to the power of technology in changing your financial operations.
Benefits of Automated AR Processes
Automated invoicing ensures that invoices are generated and sent out as soon as a service is delivered or a milestone is achieved. Automated reminders keep you at top of mind with those who owe you. Your payment process will stay on track, reducing the likelihood of late payments.
Automated AR processes can help your overall operational efficiency. Streamlined invoicing and follow-up processes free up valuable time for your finance team.
You’ll also improve your cash flow. Faster payments mean better liquidity, allowing you to invest in growth opportunities.
Another key benefit of automation is that the ability to use electronic payments introduces an added layer of convenience and efficiency. Electronic payments are faster and more reliable than traditional methods, further improving cash flow.
Finally, real-time tracking of open invoices helps establish better cash flow forecasting and planning. You’ll be able to paint a clearer picture of cash you can expect to have on hand and work with those figures accordingly as you pursue new business.
Understanding Money Out (Accounts Payable)
Legacy accounts payable, or AP, processes are often fraught with inefficiency. Manual data entry, paper checks, and outdated systems lead to high costs and slow processing times. These challenges can disrupt your ability to issue timely payments, hurting your bottom line.
Manual-based AP processes often come with a hefty price tag in terms of how much oversight they require. The high cost of manual AP processes, including labor, errors and late fees, can be a significant drain on resources.
Benefits of Modern, Automated AP Processes
Modern, automated AP processes offer a stark contrast to manual ones. Automation reduces the risk of human error and lowers processing costs. It also enables faster processing, as automated systems can process invoices and payments much faster than manual methods.
You’ll also be able to monitor progress more reliably. Tracking key performance indicators such as invoice processing time and cost per invoice becomes easier, allowing for continuous improvement.
Connecting AR and AP
There is a strong correlation between having connected, automated AR and AP processes and healthy cash flow. Automation enhances efficiency, accuracy and streamlines operations, leading to improved liquidity and financial stability.
While many government contractors have begun to adopt automation, for many there is still room for growth. Full automation of both AR and AP processes is the key to unlocking maximum efficiency and cash flow health.
This isn’t just a theory — people in our industry have observed the power of this. “With the rise of integrated software systems and electronic payments being a norm in our personal lives, the shift to from a manual cash flow process to an automated one is increasing at an exponential rate, and the benefits are clear,” said Matt Simonson, senior product marketing manager for Unanet. “Firsthand, working for Unanet, I’ve seen customers slash their AR and AP processing and collection times by 66%. It’s a huge win for liquidity and getting a greater ROI out of your operational spend.”
A connected and centralized management system for cash flow that integrates both AR and AP processes is the best way to unify them. This holistic approach ensures that money in and money out are aligned, providing a clear picture of your financial health.
Automated AR and AP processes enhance operational efficiency. You’ll spend less time tracking down those who owe you and less time making payments. For GovCons adopting AR and AP automation technologies can lead to new levels of growth and stability. Imagine the edge you’ll have on your competitors if you can put your cash flow on autopilot with minimal operational effort. You’ll spend less time focused on where your money is going and more time on what you should be doing with it to achieve future success.
By embracing automation, GovCons can ensure that their financial operations are not just efficient but are also poised for future growth.
