Many businesses had to seek short-term fixes for cash flow pressures during the pandemic. As the dust settles, now could be the perfect time to re-examine which Accounts Receivable (AR) solutions are the best long-term fit for your business.
History repeats itself?
The recession of 2008 placed a detrimental strain on businesses around the world. The accounts receivable departments took the brunt of the pain as companies conserved cash and payment days slowed. Maintaining the lowest Days Sales Outstanding (DSO) levels possible became crucial for keeping a sustainable cash flow. With businesses struggling financially, professionals in these departments came under the spotlight. It was their job to ensure that any money owed was coming in as quickly as possible. Only by optimising the amount of cash available could businesses have the best chance of riding out a difficult economic period.
What followed was nearly a decade of relative economic stability and, with it, complacency. The accounts receivable department fell out of the spotlight. Instead, focus reverted to accounts payable and other areas of the business where innovation seemed more exciting and potentially remunerative.
Then the COVID-19 pandemic struck. While each crisis is unique, the financial pressures and human reactions are very similar. Downturns always hit three areas the hardest – revenue, margin and cash flow. And this was no exception. Cash flow considerations were once again at the top of the agenda for a lot of businesses, with payment delays or defaults commonplace.
Progressive businesses used the good times as a window of opportunity to reinvest. Innovating and increasing the efficiency of their accounts receivable departments in the knowledge that it could prove crucial in ensuring sufficient liquidity to weather the next storm, whenever it came. But other businesses were forced to make knee-jerk reactions to low cash levels. They searched for unpaid invoices to chase by email or phone call.
Creating long-term value through technology
Cash is king and ensuring that more of it is coming in will benefit the business as a whole. Equipping the accounts receivable team with the right technology can enable organisations to reduce debtor days and time spent on disputes and customer segmentation, decrease the impact on margins and bring the credit controllers and sales teams together. In AR departments, automation implementations help manage staff turnover. The business-as-usual processes can be satisfactorily handled by technology with little intervention.
At the day-to-day level, AI and machine learning technologies enable automatic matching of invoices to payments, the tracking of incoming payments, and the analysis of critical data such as delivery status, amount due and payment history. While most companies have moved to some form of digital invoicing, using AR automation allows organisations to adapt to any format – even if it is on paper. You use the same platform to deliver invoices in the way that best suits your customer. It can also provide real-time alerts, ad hoc reports, and other insight tools, to highlight potential problems and allow more effective cash flow management. As AR processes continue to grow in complexity. From credit limits to managing new types of payment methods such as cryptocurrencies. The benefits of automation and real-time dashboards will multiply.
So why have some organisations delayed the implementation of digital transformation policies? Much of the work within accounts receivable is traditionally perceived to be ‘boring’, which may have contributed to the lack of focus on innovating it over the years. Ironically, shifting focus and applying technological innovations to the department can take these repetitive tasks away from the employees. This enables them to focus on the more challenging and stimulating tasks, and ultimately reducing the risk of human error.
Digitalisation of invoicing and payment processes was broadly underway before COVID-19 struck, at least at the more forward-thinking organisations. But the pandemic – and its widespread repercussions for all businesses – have turbo-charged the transition. Even those organisations that were reluctant to move from manual systems are revisiting their plans with renewed urgency. Automated workflow technologies are now crucial in today’s business world, helping to assist finance professionals in their typical working day and completing the manual tasks that traditionally required human input. But there is still a long way to go.
The accounts payable and accounts receivable teams often work independently. But synergies can be achieved by aligning the technology used by both teams. For contra accounts that both buy and sell from organisations, for example, it can be potentially damaging to a relationship to chase a client for a small amount owed when a large sum is owing in the other direction. Bringing both departments in line with similar technologies can create a more transparent strategy across the business.
At Visma | Onguard, we provide solutions that connect data on one centralised platform, linking internal and external systems and services while leveraging intelligent and intuitive automation to deliver valuable insights. Such as when to deliver payment reminders and in what format. This enhanced visibility and secure sharing of critical data ensures optimal connection between all processes in the order-to-cash chain. It supports quicker decision-making and fostering stronger customer relationships.
Preparing for the longer term
Hardships always teach lessons. We have been through a period of immense change but that does not mean we can return to complacency. Businesses need to review their existing AR solutions to ensure that when another cash squeeze comes along, they have sufficient understanding of their debtors. And most importantly, what levers they can pull to ensure sufficient levels of cash are available to the business to survive.
Not sure where to start in the accounts receivable space? Talk to us today about integrating MatchMaker – this solution enables accounts receivable departments to automatically process up to 90% of payments and invoices, creating a faster and smarter way for payments to be reconciled.