If you are looking more carefully at cash flow after the collapse of Silicon Valley Bank, you are not alone. One place to look is automating accounts receivable (AR).
With the increasing digitization of all aspects of finance, AR sticks out for its antiquated processes. Most businesses still do AR manually, and changing from that process has not been top of mind. But it should be.
Automating AR has the potential to increase cash flow, save businesses a lot of money, improve customer service, and be more environmentally friendly. Digitizing AR also makes it possible to use artificial intelligence and machine learning to parse AR data and find patterns that can be used to improve the business in surprising ways.
In a recent PaymentsJournal podcast, Steve Murphy, Head of Commercial and Enterprise Payments at Javelin Strategy & Research, and Bob Purcell, CFO of Billtrust, discussed the many benefits of automating AR. Many people think that it isn’t worth the cost or effort to automate AR and that there are no synergistic benefits for a business by doing so. Their conversation counters that assumption.
Financial Resilience Starts With Perfecting AR Cash Flow
The pandemic and the recent bank collapses have reanimated the importance of managing working capital.
The pandemic led to a significant disruption of supply chains and increased uncertainty in the economy. The bank collapses have also highlighted the importance of working capital management as businesses have struggled to find alternative sources of financing. Many companies were caught off-guard by the bank collapses and have had to scramble to find alternative funding sources to maintain their operations.
In preparing for a downturn, companies should focus on what they can control and make their businesses more efficient. Shifting from manual AR to automated should be at the top of the list.
Manual AR tasks inhibit cash flow and increase operating costs. Automated AR processes improve cash flow and reduce costs.
“We’ve reached an inflection point in our profession,” Purcell said. “Finance leaders across our customer base are beginning to understand that digitally transforming AR and adapting technology bolsters our financial resilience.”
This shift has been a long time coming.
“AR software penetration is only around 24% of companies today, meaning that over three-quarters of businesses are still relying on manual processes and working with cumbersome legacy systems that slow down cash flow,” Purcell said.
“According to AFP,.33% of B2B payments in North America, and 31% globally, are still made by a paper check. So, it’s really time for corporations to fortify their businesses through AR digital transformation.”
Leveraging Data From Automated AR
Automated AR allows companies to forecast their cash flow better. It is particularly helpful for companies with lots of remote employees, as payments can be moved quicker, without having to rely on the mail.
But there are likely to be additional payoffs in efficiency from automating AR, the kind that can’t necessarily be seen in advance.
“Once companies start processing AR in digital software, they can then take advantage of the machine learning and other AI capabilities,” Purcell said.
Purcell gives a few examples of how this data could help make a business more efficient.
“AI and machine learning can potentially inform you about what segments of your market pay faster than others, thereby helping you determine your ideal customer profile,” Purcell said. This information can help the company decide which customers to target in advertising and outreach.
Automation Hits Many Birds With One Multifaceted Stone
When humans are involved, human error follows. So reducing human involvement in AR has the potential to reduce costly errors and produce savings on labor.
Moving toward automation makes things more efficient, predictable, and reliable across the board, thereby improving customer service. “After implementing our software, our customers say they have around 25% better customer service levels,” Purcell said.
The move toward automation also improves liquidity.
“Two of our many responsibilities as CFOs are safeguarding our assets and improving cash flow, right? The banking crisis has definitely caused us to step back, take stock, and create an alternative plan to what we do,” Murphy said.
Automating AR can interface nicely with new methods of customer service, including chatbots. With ChatGPT-4 now on the market, companies are hustling to incorporate it into their products, and AR will be no different. Doing this well can allow a company to downsize its AR staff and customer service staff, generating significant savings.
“There are exceptional companies out there that embrace AI and machine learning, that are making it a lot easier to manage your money without needing to contact a customer service rep,” Purcell said. “You’re told (in) real time what things look like.”
A bonus to automation is that it involves less paper, which makes a company’s operations more sustainable.
“The environmental effect of having automation can be really substantial,” Purcell said. “One of our customers digitized nearly 1.5 million of their invoices, in 2021. They found that automation saved them over 170 trees, 159,000 gallons of water, and 189 million BTUs of total energy.” Another big benefit is that automation positions businesses in a way that is attractive to Generation Z customers. Gen Z prefers convenience and a digital pathway in B2B payments. Companies that develop systems that are as sophisticated and convenient as the best P2P applications will be the most successful at keeping Gen Z as clients.