Accounting teams have had a rough go of COVID, in many cases improvising highly delicate and secure operations on the fly during the depths of lockdowns while working remotely.
Here comes that word again: acceleration, particularly of the pandemic variety which is now said to have forced three to five years of digital adoption into a few short months. The accounts receivable (AR) function is one of the first to yield to sped-up digital modernization.
“Our research shows that approximately two-thirds of firms are moving away from manual processes and are planning to embrace technological solutions to upgrade their AR systems for faster processing, higher efficiency and lower costs and thus address what they view as their three main pain points,” according to The B2B Payments Innovation Readiness Report, a PYMNTS and American Express collaboration. “They are more specifically turning to automation to fix key AR functions with which they are struggling, including collections, customer credit checks, cash applications and reconciliations. Firms that have made the leap are finding themselves in better positions to more easily adapt to changing market dynamics.”
Analyzing survey responses of 460 businesses of different sizes and sectors including advertising, technology, construction, energy and healthcare, The B2B Payments Innovation Readiness Report assesses the degree to which firms are adopting AR and other automation.
Manual vs. Machine
High operating costs associated with manual processes are now in the crosshairs of CFOs who are solidifying post-pandemic operations and merging in technology for better outcomes. This is crucially important now as companies do the painful math on legacy methods.
“Challenges arising from reliance on manual AR processes for firms in all sectors often extend to processes critical to cash application and credit checks. We found that 27.6 percent of firms say that manual processes affect their credit functions and 22.6 percent say the same for cash applications. Reliance on manual process also impacts collections for 18.5 percent of firms that identify their legacy ways of managing AR as a pain point,” per the new report.
Not only this, but the report adds, “The degree of automation used in managing AR strongly relates to firms’ ability to shorten their collection cycles. The DSO of the typical firm with no or low levels of technological implementation for managing AR is 52 days, for example. That is 12 days more than firms that have moderately to highly automated AR processes.”
Automating Collections A Game-Changer
With some 64 percent of firms now parting ways with physical invoices, it’s about time, as The B2B Payments Innovation Readiness Report finds that “14.7 percent of business-to-business (B2B) receivables on average are overdue. The situation is particularly troubling for larger firms that generate more than $500 million in annual revenue, as 16 percent of their B2B receivables are overdue, compared to 14.3 percent for mid-sized firms generating between $50 million and $500 million and 13.8 percent for small firms that generate less than $50 million in annual revenue.”
Shortening collection cycles is the promised land of B2B payments, and payments in general. That’s being accomplished more with back-office AR/AP automation that leaves time for experienced humans to elevate customer experience and scrutinize transactions.
“Even having some degree of automation can significantly improve firms’ abilities to more efficiently collect payments, follow up when there are delays and achieve shorter DSOs. A typical firm with no or low levels of AR automation offers an average payment term of 31 days and takes 24 additional days to follow up, for example,” the Report states, “resulting in an average DSO of 52 days — 24 percent higher than a typical firm. Businesses that employ moderate to high degrees of AR automation have terms of 24 days and follow up within 16 additional days. This helps them achieve DSOs of 40 days — 23 percent lower than their manual counterparts.”