Accounts receivable

asset-based lending is a line of credit.

You'll probably see a little bit higher of an, you're going to see a higher interest rate than you would at a traditional bank, but a line of credit based off of your AR.

So if you have a million dollars in AR and you go to an ABL, which we work with some that we can certainly refer to if it's a better fit for clients, but they'll give you a percentage of your AR as a line of credit, as a revolving line of credit.

That could be good for some companies.

You know, if they're in a situation where they're not looking for explosive growth or they don't really have too much debt, but they're not quite ready for a line of credit.

I mean, that could be a good product for somebody.

You're going to be limited to, I don't know what the exact percentages are, but maybe 60 or 70 percent of what your AR is.

But if that's all you need, that could be a good avenue for agencies.

Believe the business has far more working capital than it actually has.

The bookkeeping problem isn't that the AR report is ugly.

The business problem is that management is counting money that may or may not exist.

A legitimate cleanup asks, who owes this money? For real.

It goes to the underwriter.

The underwriter asks why the loan on your balance sheet is $84,000 when the lender says it's $61,000.

Or why AR jumped dramatically when revenue didn't.

Or what a $47,000 cash balance in other current assets actually represents.

First of all, you kind of already touched on this, which I love.

Like, why does it matter? Well, first of all, AR is your real-time cash flow tool.

you know, pulse, right? This AR really gives you the pulse on everything that's happening in your business.

It can tell you what dollars are coming in, what dollars should be coming in, but haven't.

It's really what your lenders look at first too.

Lenders, investors, strategic, you know, acquirers are going to look at AR and really it tells them two things.

One, are we going to get repaid if we lend you money? And how much should we lend you? And then if you're disciplined in accounts receivables, it gives them a really good indicator that you're probably disciplined in the rest of your business and they can really rely what's in your books.

Third, it's a warning system, right? Things happen all the time.

There are three core components a CEO can physically manipulate.

Accounts receivable, inventory, and accounts payable.

Let's start with accounts receivable, AR.

This is the money people owe you.

The Yale text is adamant AR management is not below the CEO's pay grade.

It is the final, most crucial step in the entire customer journey.

You spent marketing dollars to win the account.

Turn the inventory over constantly.

These decisions look very different depending on what actually happened in your business during the first eight months of the year.

The four things I want you to know are your actual cash position, your year-to-date gross margin, your accounts receivable aging, and your expense trends.

You'll notice I didn't say revenue.

Revenue is important, but revenue by itself doesn't tell me nearly as much about the health of your business as most business owners think it does.

That's useful financial information.

That's information you can make a decision with.

Number three, your accounts receivable aging.

You know, accounts receivable is really how I got into accounting.

Not at all.

So phase shift is a AI operating system for accounts receivable.

We had no idea what accounts receivable was before starting phase shift.

We did not even know it existed.

So this was just sort of the interesting navigation to finding a hidden greenfield market that we just felt like we laid it on hold.

So I wrote this message and it was like, hey, I'm not selling anything.

I'm actually pivoting my startup.

But like, are you willing to tell me about how you do accounts receivable at your company? And I didn't even know accounts receivable was a term.

If the bank accounts aren't reconciled, We don't know whether all the transactions are there.

If accounts receivable is wrong, we don't know how many customers actually owe you and how much.

If loans aren't recorded correctly, the balance sheet may be misleading.

If payroll hasn't been posted properly, labor costs may be wrong.

The balance sheet, though, is an entirely different animal.

Your balance sheet tells you about the financial position of your business at a particular moment.

Look at cash, look at accounts receivable, look at credit cards, look at loans, look at tax liabilities, look at anything unusual.

If you have $200,000 in accounts receivable, how old is it? Because if it's mostly less than 30 days out, that's very different than 200 grand where half of it's more than 90 days old.

So we merge our own fintech.

So customers have their own business bank accounts, expense cards, AR, AP.

but we are also the accounting company.

So we have our own in-house accountants, tax fiscalists, and payroll administrators.

Everyone on the team uses Claude.

We always think ahead of hiring, how much can we automate? It's like, is this, is this person so important that AI cannot do their job? And it's a strong challenge amongst teams and motivating for headcount, but it's also a way that we can change behavior and thinking, what are the possibilities? And that's particularly when we think building an AI native accounting firm, a lot of them are trying to recalibrate backwards.

And I think you will see this genuine curiosity and what can we do with automating reconciliation on AR and AP and then dropping data into Claude and running that.

But ultimately you still need a human to check it.

What does it look like to manage your working capital properly?

Well, you know, sometimes the way I said it is, you know, Bob in Accounts Receivable doesn't talk to Mary in Accounts Payable.

But it's really...

I had a company that I, that I worked with for a little while.