Why does Cash Velocity Matter for Your Software Company?

Aug 29, 2023 by Zazil Martinez

In the ever-changing economy, cash velocity is crucial for businesses to thrive. Software companies, facing shifts in funding and valuation, are now focusing on this more than ever. Learn about cash velocity, why it matters, how to speed up revenue collection and explore tools like digital payments and automated processes that can boost your company's financial health and growth.

Cash velocity is essential in every industry. But as we transition to an economic landscape where cash is not always available, it has become increasingly important for software companies.

Software companies' private and public valuations have dropped by 40% to 80%, even with funding rounds. Despite the economic headwinds, private equity and venture capital still seek companies generating predictable growth. However, managing growth requires hiring more Accounts Receivable staff.

These are some steps your team can take to put your software company in the right place and take advantage of every opportunity.


What is Cash Velocity?

Cash velocity defines how quickly your business can get its revenue. For finance teams, cash flow is king. Understanding how it works and how to improve it can be game-changing for the financial health of organizations.

To calculate cash velocity, divide cash flow by time. For example, a company with a $120 million per year positive cash flow has an average cash velocity of $10 million per month or $30 million per quarter.

Why is it necessary, and what can finance teams do to decrease DSO? Let's discuss increasing your business's cash velocity and the importance of integrated AR and payment automation.


Discover how Thumbtack reduced DSO by 40% and write-offs by 98%.


Speed Up Your Time-to-Cash

Finance teams are aware of the time it takes for checks to travel by mail and how they get lost or tampered with. Payments made via paper check are susceptible to fraud 74% of the time.

While almost all corporate aspect has gone digital, B2B payments are still stuck in the pre-internet processing days. They take too long to collect and are prone to human errors.  However, some tools can improve DSO by up to 80%, including auto collections, auto reconciliation, "pay now" links embedded in email invoices, instant funds, and smart lockboxes.

  • Collections automation can contain the rising cost of AR operations.
  • The right B2B payment processor can digitize the cash cycle and cut paper check payments.
  • Auto collections, auto reconciliation, and instant funds can set up recurring payments to always know when to expect incoming funds.

Some solutions –like Paystand's integration for NetSuite Credit Card Processing – seamlessly integrate with existing ERP systems, providing every feature needed to speed up time-to-cash.

Our Smart Lockbox is designed to unlock a paperless cash cycle from payer to merchant and works effortlessly with NetSuite. It enables a one-click migration experience for paper check payers, digitizing future check payments. Smart Lockbox also offers remote remittance processes that cut DSO and trips to the bank. This gives immediate visibility into the cash flow through payment data automatically displayed, offering a centralized collection process and reducing receivables risk with 24/7 payment tracking.

The right digital payment solution effectively increases cash velocity and helps businesses where it counts most: collecting revenue.


Read how Choozle saw a 33% reduction in DSO within six months and a 50% decrease in late receivables.


Automate Essential AR processes

How AR teams operate is another major factor impacting cash velocity. Finance departments still rely on manual processes that take too long to complete. Besides keeping teams from focusing on strategic development and other high-level tasks, most manual AR processes drain company resources as they spend excessive capital on human-intensive processes instead of substituting them with automated solutions.

AR teams often deal with complex systems, including:

  • Invoice creation and presentment
  • Signing contracts and underwriting with multiple banks
  • Sharing remittance information
  • Following up with multiple emails and phone calls until the invoice is paid

After that, finance teams must track paid and unpaid invoices with multiple banking partners, keep track of payments, and wait 7 to 15 business days for the payment to show. Yet, the best B2B payment offerings can reduce AR staff costs by as much as 50%, helping cash velocity increase.

Automated AR solutions can reduce internal fraud and human errors, allowing finance teams to handle payments more securely. Digital payments are more secure than paper-based payments, especially in B2B transactions.

When choosing a B2B payment provider, select one that allows fully automated billing, payment, cash application, and reconciliation. This can be done through autopay, Fund-on-File tokenization, one-click checkout, and auto reconciliation. Knowing what you need lets you choose the best B2B payment solution for your finance team and speed up your cash velocity.


Cut Bottom Line Draining Fees

Sometimes, finance teams don't realize that B2B payment processes can incur unnecessary fees.

Paper checks have many indirect costs associated with them, including those related to labor and processing. Bank of America estimates that a check can cost $4 to $20, based on the check price and postage. These costs don't include the time finance teams spend writing, mailing, collecting, and reconciling the payment. If a business processes 5,000 paper checks monthly, it could spend as much as $480k annually on collecting revenue via paper checks.

Credit card payments seem less expensive than paper checks, but they're tied to transaction fees that cost as much as 3.5% of every payment.

Checks and credit card payments impede cash velocity, and finance teams must turn to new solutions that end archaic processes and unfair transaction fees.

Paystand allows access to zero-fee, direct-bank payments. This functionality allows dropping credit card fees via payer incentives, shifting customers away from card payments. All while allowing savings of an average of 67% on processing fees. This also applies to convenience fees and hidden costs associated with paper checks.


Manage Twice the Payments Without Adding AR Staff

Software companies can have problems at any time—problems compounded by the current economic environment. To grow without adding more AR staff, they need to streamline in anticipation of an IPO or acquisition. Or they may struggle with budgeting and cash flow projections due to inadequate data.

Paystand helps make it all less complicated with:

  • White-label customization for email invoices
  • Single-click payments with an embedded "Pay Now" link
  • Flexible payment methods including zero-fee bank network, ACH, credit cards
  • Automated invoicing, payment reminders, and reconciliation
  • The ability for payers to see open invoices and pay per line item
  • Greater visibility and ability to forecast and budget cash flows using real-time updates and analytics

Many tools are at your disposal to increase cash velocity. If you're ready to explore how to speed up your time to cash and cut transaction fees, book a demo with one of our payment specialists today.