Accounts receivable (AR) has typically been a misunderstood function in the business. 

Its existence is largely seen as a necessary but transactional back-office role which has no ‘value-add’ for the business in the bigger scheme of things. This has resulted in a lack of investment in AR from a technological perspective as how it can be optimised and the business impact that the right optimisation can have are often misunderstood.

Moreover, given that AR is typically viewed as largely time consuming, transactional and manual, having it offshored is seen as a convenient way for optimising or streamlining the solution. But this simply displaces the problem elsewhere, rather than solving the underlying issue.

This is where technology comes in. Investing in the right technology which automates the AR function allows complete visibility over a business’ cash flow in real time. The intelligence, real-time oversight of working capital and data that optimised AR offers to businesses are invaluable for several key reasons.

Unlocking working capital

Applying customer payments to customer accounts quickly and accurately is the cornerstone of successful AR. However, manual processes lead to significant delays in unlocking crucial cash flow.

Money owed by customers is one of the largest assets on any balance sheet. A recent PwC report estimated that the amount of working capital held hostage in this way is an enormous €1.2 trillion (S$1.674 trillion) globally. According to PwC, releasing this cash would be enough for global companies to boost their capital investment by 55%, without the need to look externally for funding or put their cash flow under unnecessary pressure. With current interest rates, looking internally to find opportunities to streamline cash flow and payment processes is a no brainer.

Releasing cash from receivables is the quickest and cheapest way to more working capital. Yet, organisations continue to rely on manual processes which tie up cash for far longer than necessary and lack proper visibility. Investing in technology to streamline AR frees up more working capital, which means more effective decision making and stronger business resilience. It gives the business much more power in their hands and leaves little room for guesswork.

Maintaining lasting customer relationships

It’s no doubt that customers are the bedrock for many organisations. They have the ability to support businesses through tough times and this is why we need to have a mindset shift here. Customers should be treated with the same respect when they owe money as when they don’t. Investing in AR creates the visibility over customer payment behaviors that is essential to this.

The way a business treats their customers not only reflects their internal efficiency, but crucially shapes perceptions for both potential new customers and those on the fence about jumping ship. Relying on manual processes could lead to issues such as wrongly chasing a customer for a payment already made days before. This could reflect poorly on the organisation. Aside from the wasted time and effort, receiving an erroneous demand for payment on a bad day could be the difference between a continued relationship and a swift parting of ways.

The right solution can unlock decision intelligence by removing time-consuming and error-prone processes involved in preparing, transforming, and visualizing data. This helps business teams make more informed decisions around credit risk policies, collection strategies, or credit limit increases to create greater value for the business. It can help a business gain visibility into customer behavior changes. This could unlock opportunities for businesses to work with customers to solve payment challenges before they become a major problem, or increase their line of credit and in turn, business revenue. This can improve profitability by reducing the financial risks posed by write-offs and late payments.

Creating greater visibility over real-time payments allows organisations to leave the war of attrition over unpaid invoices behind. This leads to a more customer-centric approach to credit, collections, and complaints that can help maintain good customer relationships.

Retaining talent for a competitive advantage

The ability to attract and retain top talent is crucial to business success in an increasingly competitive business environment. A recent survey commissioned by BlackLine suggests that one of the first steps finance and accounting needs to take to retain their best workers is to eliminate transactional, mundane work. More than a quarter (28%) of F&A professionals surveyed worldwide said there weren’t opportunities to learn new skills due to transactional work taking up so much time. Around a quarter (26%) claimed that they had become bored of the mundane, repetitive nature of their jobs. A similar number (26%) also claimed not to have time to focus on future career development.

It’s clear that many employees want to value-add, regardless of function. Plowing through a list of manual tasks which can be automated, does not add value. If 80% of time is spent on routine tasks that can be automated, that’s 80% of value gone before any major or strategic tasks arise. This wasted energy is a waste of talent, which passes on up the chain. 

Automation frees up F&A team members to focus on strategic, more career-focused goals, ensuring their motivation and energy is spent bringing value to the business (and not someone else’s).

Don’t leave it to manual processes to decide your fate

Many organisations have now automated processes such as accounts payable, but the prevalence of manual processes in accounts receivable continues to pose serious financial health issues for businesses. The problem is that automating some processes and not others could ultimately cost a business more than they bargained for. If the budget only stretches so far, it’s essential to upgrade the process that will have the biggest impact. 

This can be best explained with this analogy: You need to dig a huge hole in your back garden. Doing it with a shovel could work but would take a huge amount of time and effort. Hiring a contractor with the right equipment gets the job done much faster and with much less effort. The problem is, you didn’t know where exactly to dig the hole to begin with and you’ve dug it in the wrong place. Now, not only do you still need to dig the hole, but you need to repair the large area of the back garden that is now a building site.

Automating some F&A processes but sticking to manual processes for AR creates a similarly traumatic scenario. Choosing to invest in accounts receivable opens up a treasure trove of intelligence and profitability that could mean the difference between success or failure. Investing in AR is no longer a nice-to-have, it’s a must-have for survival.