From presentment through posting, accounts receivable (AR) teams are constantly looking for ways to inject efficiency and automation into the cash conversion cycle. It’s a powerful corporate goal, and one reason why analysts expect the global market for AR automation to grow by double-digits, topping $3.9 billion by 2026.1
The potential benefits of AR automation are numerous:
• Greater productivity for AR teams
• More current, accurate data for decision-making
• Reduced Days Sales Outstanding (DSO)
• Stronger customer service
However, if you’re a treasury management or AR leader charged with digital transformation, these initiatives may seem more overwhelming than revolutionary. Too often, competing internal priorities, lack of resources, or simply figuring out where to start can hamper forward progress.
A three-part framework for successful AR automation
No matter where you are in your journey from manual to electronic, it helps to get organized. Working through this framework with your internal stakeholders, your AR bank, and any fintech, ERP, or system vendors will help you understand your options, make smart decisions, and reduce implementation headaches.
Consider these three areas:
1. Your systems infrastructure
At its core, optimizing the cash conversion cycle requires three key data points:
• Dates when customer payments are due
• The dollar amount customers pay each day
• Which invoices to apply these payments to
The issues lie in getting that information to move seamlessly (and accurately) between your ERP or system of record, your bank(s), any business units that manage their own collections, and any AR vendors you use. Start by mapping out your current flow of information, then look for ways to optimize the process.
The ideal experience for AR staff will be the ability to complete as much of the cash application process as possible within a single interface—without toggling between paper, emails, portals, or other applications. Robotic process automation tools (RPAs), API interfaces for real-time delivery of data, and integrated receivables solutions will all move you toward this vision.
The number of vendors you work with will also impact your end product. While fintechs bring many innovations to the table, it’s now possible to access these solutions through your bank, which can further streamline your end product.
• What data can your bank provide, and in what formats and timeframes?
• What requirements exist for integrating with your ERP or system of record?
• How many vendors do you want to manage? Does your bank have solutions that can help you consolidate your technology footprint and work more efficiently?
2. Your procure-to-pay processes
As you digitize and automate, you can improve your AR workflow for staff and customers. It helps to document your current processes and look for bottlenecks and problem areas. Often, conducting this exercise with the full AR team will reveal upstream issues that impact downstream productivity, accuracy, or efficiency.
For example, issuing bills electronically, with a “pay now” link embedded, helps move payments and remittances into an electronic workflow that can reduce DSO and accelerate posting. That translates into fewer exceptions and less work for the cash application team, as well as better customer service.
Another area to investigate is matching electronic payments to remittances and your open invoice file. It’s one of the biggest issues for most AR teams. Staff spend too much time hunting for information in portals, emails, and other channels, then manually entering this data in order to post a payment. Integrated receivables solutions, which use the power of artificial intelligence (AI), can eliminate most of this pain.
The goal with AR automation should be to minimize—or eliminate—the number of times AR teams need to “touch” a bill or payment. The greater your straight-through processing rates, the stronger your cash flow and efficiency.
• Where are manual processes slowing your cash conversion cycle?
• How comfortable will your customers be making digital payments, using portals, and communicating electronically?
• Where can you embed checkpoints, approvals, and controls in your electronic workflows?
3. Your AR team, stakeholders, and customers
A reality in almost all AR departments is that the workload always exceeds the time and resources available. Nearly every day, exceptions, customer service, and critical payment issues take precedence. Manual processes and time spent retrieving information exacerbate the situation.
As you look to evolve and digitize your AR ecosystem, make sure to tap the institutional knowledge within your AR team. Ask for input on which processes are most manual and time-consuming, where issues occur, and why workarounds are in place. These insights will help your bank, your vendors, and your internal IT team design the best possible solutions.
• Which transactions require the most manual work from AR staff?
• Where can you pivot internal resources to value-added activities?
• Are internal resources properly aligned with the most important activities for the organization?
Support future growth with a scalable solution
Scale is a final factor to consider. Any solution you implement today should be able to support your company now and in the future. Ask your bank and system providers how their solutions will respond to a few growth scenarios, such as: when payment volumes grow, if you adopt additional payment methods, or if you expand your business into new markets. Creating a solid and scalable foundation will help you maximize ROI and eliminate disruptions in your cash conversion cycle down the road.
For more information, contact your Wells Fargo treasury management representative.
1 Mordor Intelligence, “Accounts Receivable Automation Market—Growth, Trends, Covid-19 Impact, and Forecasts (2022 – 2027),” 2021