Effect of Poor Receivables Management on the Hospitality Industry

The hospitality industry takes care of the relaxation and luxury of the nation's human resources. Their presence is of utmost significance for every economy and industry. However, this sector cannot thrive without its backend operations. One of the most crucial ones is accounting and bookkeeping. It involves managing financial transactions, maintaining up-to-date records, and providing firms with information about their financial performance and position. It allows them to take action immediately when something seems wrong. Accounting services outsourcing is common in this industry because of these services' tediousness and monotonous nature.  

The hospitality sector manages other sectors’ emotional and mental well-being, while the accounting industry brings life into these institutions. Without adequate financing, it becomes impossible for them to run seamlessly. The primary income source for the hospitality sector is visitors and travelers. However, not every customer pays their dues as soon as they visit. They may take time, and firms need to extend a credit period to collect money. Therefore, accounts receivable management is essential.  

Moreover, the hospitality industry considers different modes and currencies in global operations for payments. It may become challenging to handle all these activities together. The administrative costs will shoot when the transaction volume rises significantly. Thus, outsourced accounts receivable services form a lot of sense in such complicated situations.  

When the hospitality firms do not pay attention to their primary cash-generating task, which is accounts receivable, they face the following consequences: 

• Messed up operating cycle: 

The operating cycle of a hospitality firm relies on receivables and payables. When the firm makes a sale and purchases required material simultaneously on credit, it would prefer the customer to pay before the due date for payables. It is because it will need cash in hand before paying its suppliers. However, with poor receivables management, firms won't know who is due or overdue and how much. It can complicate the collection process. The entire operating cycle suffers from such happenings.  

• Inaccurate entries: 

Poor receivables management will have unreliable reports and records, and the firms would not have paid adequate attention, leading to errors and discrepancies. Accounting services outsourcing can rescue companies from such situations.  

• Inadequate cash inflows: 

Businesses would not have enough cash because they do not collect their dues from suppliers on time. The cash shortage can affect other functions like payables, expense management, cash flow forecasting, budgeting, etc.