This piece appears in Fintech and is penned by the CEO of a 2018 startup based in Tel Aviv that specializes in receivables automation. Readers will see some familiar themes, especially members of CEP who may have read recently posted research on the very topic of receivables management and its importance in keeping businesses stable during tough times. The heightened interest in all things digital around the category of financial operations as a result of the events of the past 18 months has generated further interest in AR automation.
‘For most companies, managing cash flow falls on the shoulders of the accounts receivables department, which faces an enormous challenge each day collecting payments from customers. While businesses have always struggled to get customers to pay on time, it is astonishing that in 2021, most companies are still manually processing invoices, chasing down late payments, and waiting for checks. This is a tedious, time-consuming process that squanders resources that can be put to better use elsewhere in the business….There is no longer any reason to continue this inefficient, cumbersome process. Automatic A/R collections systems are now available to revolutionize this aspect for all businesses, eliminating the cash flow bottleneck. Today there are platforms that can integrate with any company ERP system and easily adapt to company workflow. These platforms provide companies with access to a dashboard that delivers real-time metrics, email reminders, customer payment forecasting, and can predict future cash flow. The automated collection platforms use sophisticated AI and smart algorithms to create a prediction model of invoice payment based on past customer behaviors so that companies can have more accurate insights into future cash flow.’
Accounts receivable processing is a key part of financial operations, having a direct impact on critical working capital efficiency. Results are measured in the form of days sales outstanding (DSO), or the average number of days that it takes for a company to receive payment for a sale. Generally speaking, the higher the DSO, the less working capital will be available to a company. Therefore, it is typically desirable to reduce DSO and improve cash flow. This of course varies by industry vertical but is a measurable dynamic that allows executives in like industries to compare their financial efficiencies. Technologies such as cloud computing, AI and APIs will lead to a more rapid transformation of receivables operations, resulting in greater efficiency and insight into company cash flows and a more fluid relationship with payables. The author goes on to discuss some of these top line benefits created by automated AR in SaaS form.
‘As part of the process, the system sends personalised invoices and communications to customers. Customers appreciate the automated process and the ability to pay through the programme’s app. The entire payment process – from creating the invoice until payment – takes place in the automated A/R collections platform. Eliminating the “check in the mail” process increases on-time payments and enters the cash into the business account quickly and easily….Improved customer communications strengthen the relationship between the business and the customer. A stronger relationship helps reduce the need to resort to a collection agency to obtain outstanding payments, which is costly in terms of customer loss and additional fees and further diminish cash flow.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
