Contributed by

Balance Sheet

Balance sheets are one of the three most important documents companies rely on for financial reporting and planning. It showcases the liquidity of a business and summarizes its financial situation. To accomplish this, the statement compares a company’s assets, liabilities, and equity against each other.

What Are the Basics of a Balance Sheet Structure?

The balance sheet makes it easy for managers and investors to review the health of a business at a glance. However, some might argue that the final line of the balance sheet provides an over-simplified answer to whether a business is healthy or not.

Because of this, it’s important to pay attention to all the key elements that comprise the accounting balance sheet format:

  • Assets are everything a company owns and can use to pay its debts. This includes cash, investments, accounts receivable, inventory, and property.
  • Liabilities refer to the money a company owes to others. This includes things like short-term and long-term debt, accounts payable, and deferred revenue.
  • Equity is the ownership interest that shareholders have in a company. This includes common stock, retained earnings, and treasury stock.

What Are the Different Types of Balance Sheet?

There are two types of balance sheets: corporate and financial. Corporate balance sheets show a company’s assets, liabilities, and equity. Financial balance sheets show a company’s financial position. Each type of balance sheet has its own purpose and uses.

Accountants use the corporate balance sheet to show a company’s liquidity and summarize its financial situation. They use this for internal decision-making and to provide financial information to creditors, investors, and other stakeholders.

Accountants use the financial balance sheet to report a company’s financial position to the public. The financial balance sheet is legally required for some business types and must be filed with the Securities and Exchange Commission.

What Businesses Need a Balance Sheet for a Corporation?

All businesses that are required to file financial statements with the SEC must also include a balance sheet. This generally includes publicly traded companies, such as Amazon or Tesla. Companies that plan to go public or that want to raise investor capital via other means will also need balance sheets, income statements, and cash flow statements. Investors will review these documents to estimate risk before making a decision.

What Are the Benefits of Creating Balance Sheets?

Even if you have no compliance requirements to file a balance sheet with your taxes, you might want to create one. Here are some of the many ways balance sheets can benefit your finance team and the business:

Helps you track progress against financial goals: A balance sheet can help you assess whether your business is on track to achieve its financial goals. Consider setting milestones to make it easier to track progress.

Makes it easier to obtain financing: Your business loan lender will likely want to see a balance sheet and other documents. It uses these to determine your ability to pay back the loan, which could also affect your interest rate.

Helps you manage cash flow: It shows you how much cash your company has on hand, as well its financial obligations. This can help you track cash inflows and outflows.
Helps you make informed business decisions: Your decisions are only as good as the information you have to support them. The balance sheet can help ensure you have a good snapshot of company finances when allocating resources.

How Can Generating More Cash Boost Your Balance Sheet?

Whether you’re reviewing the balance sheet for a corporation or small business, cash plays a big role. Because it forms part of the total assets, generating more cash can only make the business look better to potential investors and key stakeholders.

 

Those that are familiar with the workforce management space need no introduction to Monday.com and its powerful work OS tool. Monday.com recently moved to an automated accounts receivable (A/R) collection system, powered by Gaviti, to replace its outdated annual reporting methodology.

From Monday.com’s accounts receivables department:

With our business and sales growing exponentially, Gaviti has been a key tool in ensuring our DSO has not only stopped increasing but also shown improvements over a relatively short period of time. The ease of use combined with a highly responsive and helpful team… We have been able to quickly implement a comprehensive and versatile collections process.

When you stop to consider the broader, organizational benefits of automated A/R solutions, it’s easy to understand why Monday.com was so successful. The right A/R collection software can improve cash flow as well as the performance of key metrics – such as days sales outstanding (DSO) – within your organization.

Improve DSO Collection Processes

At its core, DSO collection is a cash flow problem. According to a U.S. Bank study, 82% of businesses fail due to poor cash flow management.

Part of this issue is attributable to the time-consuming processes inherent in manual collections. DSO collections and cash flow already vary from month to month. When you add the time spent managing spreadsheets across late payments, grace periods, and lines of credit, you have an untenable system where staff spends more time corralling reports than processing payments. And while you may not enjoy managing the nitty-gritty details of your business’s finances, your financial processes are ripe for optimization. Consider just a few ways that accounts receivable collection software can streamline your enterprise DSO:

  • Collect on accounts when they’re due with automated customer reminders
  • Create a single source of truth with a centralized A/R database that eliminates the need for tracking/compiling across different spreadsheets
  • Faster invoicing through the elimination of unnecessary payment delays
  • Standardize your process for consistent, repeatable collections every time
  • Streamline payment collection for clients, decreasing the odds of entry errors and making it more likely you’ll get paid on time

When you work to improve your accounts receivable collection, you’re working toward a healthy financial process where DSO stays low. But that’s not the only benefit of an A/R collection solution.

Stay Informed

5 Benefits of Automated Accounts Receivable Collection

In any discussion about the benefits of accounts receivable automation, it’s important to cover the broader benefits it provides:

  1. Better staff efficiency by reducing the manual hours required to perform collections tasks – all those hours you spend chasing invoices, calling clients, or writing follow-up emails add up.

  2. Ensure your data’s accuracy – real-time accurate data will prevent your company from making errors.

     

The benefits of the accounts receivable collection software are clear, and once you’ve deployed
automation,
you’ll have a hard time going back.

A/R Collections Best Practices

Although automated accounts receivable software brings a new dimension to your financial processes, the fundamentals of accounts receivable best practices remain the same. It’s a straightforward process that nevertheless tends to get bogged down by inefficiency. This is where automation software pays off.

Consider how you can leverage financial technology like this throughout your organization to improve key financial metrics. Technology is one option. Outsourcing accounts receivable collections to a service provider that can handle all the details for you is another. You have plenty of options, and now it’s just a matter of selecting which improvements will yield the best results for your enterprise.

Related Terms

Top Articles:
Contact Us