The perks of taking accounts receivable processes digital
In today’s consumer atmosphere of Google Wallet, Venmo and Zelle, people can settle payments and bills quickly and efficiently with the touch of a few buttons. This mindset is now starting to trickle over to the business-to-business (B2B) side and treasury professionals are learning they need to quickly adapt to the trend of going digital.
While manual, paper-based accounts receivable (A/R) processes remain the norm for most businesses, these procedures have significant drawbacks that can constrain the advantages of working capital and liquidity. In fact, up to 25% of revenue from potential sales can be lost due to poor billing and A/R practices, according to corporations surveyed by Novantas. Other shortcomings of manual A/R processes include:
- lengthy days sales outstanding (DSO);
- soaring overhead;
- higher past due accounts;
- poor sales analytics.
Automated A/R management solutions address these challenges head-on and create lasting business value. By utilising automation and machine learning, organisations can streamline and gain vital visibility into invoice-to-cash processes, creating benefits that lead to improved cash management, namely:
- Reduced days sales outstanding (DSO)
Cash is critical for running a business. Therefore, it’s in a company’s best interest to collect outstanding accounts receivables as quickly as possible. With automation in place, a company will have immediate access to cash following payment.
- Time and labour savings
A quicker, simplified, accounts receivable process can reduce invoice processing costs up to 70% through automation, according to research by Ardent Partners.
- E-invoicing capability
Money is lost simply in the time it takes an invoice to be delivered by snail mail. Automated invoicing allows for instant invoice delivery, meeting the increasing demand for paperless billing from customers while minimising loss.
- Strengthened vendor relationships
The ability to offer 24×7, on-demand access to bills and flexible ways to pay unlocks the potential for more satisfied customers and attractive discount arrangements.
Just as individuals have sought alternative payment methods to credit cards, debit cards and cheques, more and more businesses also want to be free from long processing times, having physical methods of payment on hand and keeping track of paper invoices. Moreover, optimising cash management is a smart business decision with benefits that shouldn’t be overlooked.
Investments in fintech are an integral source of innovation that drives better client experiences. If the evolution of past trends is any indication, businesses will soon come to expect the same 24×7, on-demand access to bills and flexible ways to pay as consumers, just as mobile banking apps rapidly became the expectation between 2015 and 2017, when usage sparked from 46% to 63%. Transitioning to A/R automation sooner rather than later will give companies a competitive advantage for attracting and retaining modern customers.
For example, KeyBank’s KeyTotal AR platform allows corporate clients to improve operational efficiency during the invoice-to-cash process using electronic invoicing and payments in a flexible, cloud-based solution. Powered by Billtrust’s Quantum Payment Cycle Management solution, the platform accelerates cash flow by automating invoice delivery and payment and cash application. Merging this innovation with KeyBank’s broad range of A/R capabilities has created one of the highest-level product suites available in the market today.
To get started with taking A/R processes digital, companies must evaluate their current situation and decide which aspects of A/R automation will be most effective in addressing the most critical needs and pain points. An organisation may decide to automate the entire A/R function or a portion of it following the analysis. The important thing is to find the balance between automation and traditional processing that is right for the organisation, and incorporate that balance into creating a strategic plan for A/R.
Next, companies must define key performance metrics and set specific goals to achieve. While the metrics and standards chosen will vary depending on priorities, some examples include:
A/R 90 days past due
Average days delinquent
# of items paid on time
Discounts captured by customers
|Efficiency||% of invoices processed electronically cycle time
Annual cash remittance per FTE
Average time to post cash
Cash application cost per transaction
|Accuracy||Backlog of open items
After setting metrics, companies can begin to leverage the right mix of A/R automation solutions to achieve those goals.
By Megan Kakani, VP of product and innovation, enterprise commercial payments, KeyBank