Why Your AR Processes Might Be Stuck in the 80s—and What It’s Doing to Your Cash Flow

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The 1980s were a decade that defined technological advancement.

During this time, the world was introduced to the Walkman, VHS tapes, and VCRs. (And Beta tapes! Remember Beta?) These devices quickly changed the way people consumed media, from music to movies. Since then, however, continued improvements in technology have rendered most, if not all, of these devices obsolete.

Instead of purchasing physical copies of music and movies, we consume these things on demand through streaming services like Spotify and Netflix. And now with email and communication tools like Slack, once ubiquitous tech like fax machines are a distant memory for most of us—that is for those of us who even know what they are.

Like technology, much has changed in the world of finance thanks to developments in software and improved methods of payment acceptance. Yet with all these advancements, many finance departments in B2B today still rely on the use of dated accounts receivable (AR) processes in their day-to-day activities.

In this blog, we’ll discuss how AR processes for many finance teams today are stuck in the ‘80s, and what effect this has on companies’ cash flow and customer experience. We’ll also offer advice for how you can transform your AR processes by leveraging automation and online collaboration to help bring your finance team into the future.

Does all our mention of Walkmans and VHS tapes have you feeling wistful for a simpler time? Revel in the 80s nostalgia with our newly released Versapay video game, “Payment Runner” here!

Managing AR Processes in the 1980s

If we were to travel back in time to the 1980s, what would the AR process look like? For starters, we would see lots of checks. Checks dominated the 1980s and much of the 20th century as the preferred form of payment for B2B suppliers and their customers. In 1989 alone, over 18 billion commercial checks were collected by the U.S. Federal Reserve, over four times more than the 4 billion collected in 2019.

Accounting for all these checks required significant manual labor from finance teams—not only in processing them, but also in scanning and printing copies to file them away for future reference. Accounting clerks were also responsible for manually matching check payments to their corresponding invoices.

You would think that we’ve come a long way since then, but many businesses still receive checks from their customers, with some even preferring them to modern alternatives.

A study by PYMNTS.COM found that checks remain the most popular payment method among businesses, with as much as 81% of surveyed respondents using checks to pay their suppliers. And although only 51% of these firms are satisfied with their use of checks, they remain the first choice over automated clearing house (ACH) (49%), credit cards (34%), and cash (30%). But checks do not have to be the only way!

The Negative Impact of Manual and Dated AR Processes on Cash Flow and Customer Experience

The U.S. Federal Reserve approximates that the total cost of processing paper checks and invoices exceeds $150 Billion annually. The direct cost of processing a single invoice is estimated to be $17 USD. Multiply this by hundreds or thousands of invoices per month, and this total works out to be a significant amount against the business.

With manual AR processes, you’re not just paying with your dollars—you’re paying with your time. Comdata estimates the average processing time of one invoice to be ten days, which can increase the time it takes suppliers to receive their cash by as much as 30 days—even for the simplest of charges. Extending the order-to-cash cycle in this way means you wait unnecessarily long for the funds to reach your account, hurting cash flow.

Another often overlooked but highly important concern with manual AR processes is the impact they can have on the customer experience (CX) you provide. Customers want easy access to their account history. They want visibility into their account status, disputes, discounts available, and credits. They don’t want to have to call your team any time they have a question. They want a modern customer payment experience.

With manual AR processes, you also lack important visibility into your customers’ activities and account status. This inhibits your ability to form insights from customers’ payment behavior that could help you engage with them in better ways.

How to Transform Your AR Process

The first step you can take to eliminating manual work and paper from your AR processes lies in automation. Beyond basic process automation that can simplify manual tasks, the key to truly bringing accounts receivable processes into the future is to eliminate the need for many of those tasks—like dispute resolution and matching payments—altogether.

You can do this by bringing all your AR efforts online and in one central location that allows you to collaborate directly with your customers. By empowering customers to communicate with you more closely—say, to raise an issue on a particular invoice line item—you can solve issues before they become disputes.

Providing your customers with an online portal to manage their invoices and pay you eliminates much of the work finance teams would do to match payments with their appropriate remittance information. With an online payment portal, you can require customers to provide information on what they’re paying and give a reason if they’re making a short payment, which makes cash application effortless.

When comparing solutions, keep in mind that the right tool should help your business achieve these four things:

1. Save Time

Your AR automation tool should be equipped to send payment reminders, invoices, and notices of overdue invoices to customers automatically and according to rules you create. This will eliminate the need for your staff to make phone calls or send emails to your customers when managing collections, which will support in maintaining strong relationships with them.

2. Improve the Flow of Information

When customers have to go through you to access their account information or make payments, this creates delays—especially if you’re fielding all your customers’ inquiries through phone or email. When you have an AR solution in place that has a dedicated portal for your customers, you can let them serve themselves, taking a lot of strain off your team. When customers make payments directly through this portal, you’re also able to collect remittance information at the time of payment, saving you time in matching payments with open AR as this happens automatically.

3. Prioritize Workflows

Without an AR automation solution, it can be difficult for your team to know exactly what their priorities should be. But with AR automation, the mundane tasks take care of themselves, so your team can focus on the important tasks that require more immediate attention.

4. Gain Greater Visibility and Transparency Into Customer Accounts

Relying on manual data entry and exports for your AR processes means any customer data you pull is likely out of date before you’ve even shared it. AR software can give you real-time access and visibility into important data.

As the world continues to become more digital, don’t get left behind with your manual efforts. Take advantage of any opportunity to get paid faster and improve processes, giving your business the competitive advantage it needs to succeed in today’s uncertain economy.


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Tyler Zedic

Tyler is the Social Media Marketing Specialist at Versapay. An avid fan of online communities, Tyler's obsessed with creating go-to places for accounting and finance professionals to connect and find engaging content that helps them accelerate their business. With experience in ecommerce, email marketing, and content curation, Tyler leverages a comprehensive toolkit to author content that gets people talking.