The Challenge
A medical industry client had been struggling for years with aging accounts receivable, weak collections, and ongoing cash shortages. The situation was critical, payroll was difficult to meet, vendor relationships were under strain, and there was little to no capital available for growth or new investment opportunities.
These AR challenges were the direct cause of the company’s cash flow crisis, creating a cycle of financial stress, missed opportunities, and stalled progress.
The Solution
After stepping in as the fractional CFO, we focused immediately on the root issue: poor accounts receivable management.
The first steps included:
- Evaluating staff performance — uncovering that one employee wasn’t making any actual collection calls, instead pretending to be on hold with customers.
- Identifying high-risk accounts — prioritizing the largest payers with the most significant outstanding balances.
- Closing workflow gaps — ensuring invoices were accurate, properly documented, and left no room for disputes.
- Creating incentives — implementing a performance-based reward system, with monthly bonuses tied to improved collections.
The Implementation
Over the course of a year, I led a complete overhaul of the AR process. Key initiatives included:
- Targeted Collections: Focused efforts on the largest delinquent accounts and those with recurring claim denials.
- Service Holds: Suspended work orders for clients with unpaid invoices until accounts were brought current.
- Team Accountability: Made the entire finance team responsible for cash flow outcomes, integrating orders, invoicing, and collections into one unified process.
- Sales Alignment: Communicated clearly that new business would not be accepted from clients with delinquent accounts.
- Vendor Relationships: Strengthened relationships with on-time payers, building trust and paving the way for future growth.
- System Oversight: Without the budget for new AR software, introduced manual review processes to improve accuracy and accelerate dispute resolution.
The Results
Within the first year, the company experienced measurable, transformative improvements:
- Cash flow increased by 35%.
- Days Sales Outstanding (DSO) dropped from 75+ days to approximately 45 days.
- Monthly collection rate rose from 55% of outstanding AR to 70–75%, surpassing the industry average of 60–65%.
- The company became cash flow positive, dramatically improving operational stability.
- Stronger vendor relationships led to increased market share and expanded services.
- Over five years, revenue grew 2.5x, positioning the company as an attractive acquisition target that ultimately sold at a higher valuation.
This engagement lasted three years and left the company with stronger processes, the right team in place, and a disciplined approach to cash flow management, ensuring lasting results.