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The beginning of a new year is often a time to reflect on past accomplishments and set goals for what’s to come. This is true in people’s personal lives and within the world of business. Recognizing this, DadeSystems took time in 2021 to speak with hundreds of leaders in accounts receivable, credit, and finance about the challenges they have faced and how they plan to address them. A clear theme emerged from these conversations: technology and digitization are more imperative than ever before.
To learn more about why accounts receivable automation is poised to thrive in 2022, PaymentsJournal sat down with Brian Greehan, Chief Revenue Officer of DadeSystems, and Steve Murphy, Director of Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.
Cash flow is a top concern for business leaders
Access to capital is not a “nice-to-have” for businesses: it is essential. The PwC U.S. CFO Pulse Survey conducted in June 2020 found that 66% of senior financial executives reported that cash flow is among their top three business concerns.
Through his work at DadeSystems, which offers a suite of integrated AR automation solutions, Greehan has seen firsthand how seriously organizations are taking cash flow. “We recently contracted with a new customer, a multi-billion dollar food distributor. We’d been selected as the vendor of choice and then waited weeks–months–for the CIO to sign the contract. I asked procurement why the CIO had to be the signer [as] he seemed pretty high up and he told me that cash flow efficiency is absolutely mission critical to the entire organization,” he explained.
This cash flow emphasis is apparent among DadeSystems’ food distribution, lumber distribution, law firm, and other types of clients. The prioritization of cash flow “is really kind of universal, both in terms of vertical [and] industry as well as organization size,” he added.
Late payments contribute to cash flow concerns
One of the driving factors behind businesses’ cash flow concerns is the rising prevalence of suppliers not paying them on time. In fact, the same PwC study referenced above found that 59% of business executives reported an increase in average days late for payments.
“Some companies are paying late because they need to, some because they can, and others because they haven’t automated their payables effectively. But mostly, I think it’s the uncertainty and disruption of overall commerce. While the job market is extremely tight and the stock market is up, it is still safe to say we’re not in a normal economy,” said Greehan.
It is common for small businesses to rely on manual accounts payable processes such as physically writing and addressing checks to their distributors. But some businesses lack the personnel necessary to do so efficiently. For example, businesses depending on a small team of accounts payable employees may fall behind on making payments if members of that team call out sick or go on vacation. Automating accounts receivable wherever possible allows suppliers to mitigate the impact of these delays by enabling them to apply cash as quickly as it comes in.
Managing cash flow and B2B payments in 2022
In the past few years, there has been an enormous amount of investment and innovation around business-to-business (B2B) payments. “You have real-time payments, you have virtual cards, checks, wires, ACH, direct debit, and now there’s crypto. You see portals popping up all over the place in businesses that are smart and want to be flexible for their customers to make payments,” said Greehan.
At the same time, suppliers need to be vigilant to control the cost associated with offering additional payment types. For starters, each payment type has its own remittance. “The matching exercise with these different payment types and these different remittance types is really complex and tedious,” he added.
To illustrate his point, Greehan gave real-life examples. He highlighted the manual accounts receivable processes seen at a global shipping company that relies on a team of around twenty employees in Central America to match payments with remittances daily. Due to of employee turnover, ongoing training is needed to keep the team operating smoothly.
Another company, this time a logistics company in the United States, relies on thirteen full-time employees managing cash applications and is struggling to fill the remaining two openings on the team. “They’re spending more than a million dollars a year on personnel costs for manual exercise, of which 90% could be automated at a much lower cost,” he explained.
Digitizing AR has other efficiency benefits as well. “As companies digitize their payables and receivables process and series of processes, they have all sorts of data flowing through these systems. Now that data can be used for greater effectiveness throughout the cash cycle process,” noted Murphy.
Accounts receivable automation is within reach
Inefficiencies in accounts receivable processes have been apparent for some time. COVID-19 increased the urgency to address them. But many businesses still have not made the move to automation, with 75% of businesses still applying cash manually.
“Over the last couple of years, there has probably been more focus and investment on the payables side of the coin driven by banks and overall economics. But as we sit in 2022, I think it is receivables’ time to shine,” said Greehan. “We’re talking to hundreds of businesses that are ready, and not just ready, but budgeting to tackle receivables automation this year.”
The adoption of new receivables technology faces two major obstacles: the lack of resources and knowledge to implement it, and the difficulty in creating a return on investment (ROI) model. DadeSystems helps companies overcome these obstacles with its suite of integrated AR automation solutions.
“The good news is if you look at receivables automation relative to other IT or finance projects, this is an easy one. This is not a complex, multi-year ERP migration where your IT team needs to stop everything else and dive in. This is a relatively quick contract, six-week implementation, [and] in-quarter ROI,” concluded Greehan.