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How AR Automation Accelerates Cash Flow During a Recession (Plus 6 Recession Busting Strategies for Right Now!)

  • 8 min read

Optimizing cash flow is a concern when recession looms. This article explores six strategies CFOs can use to free money from being trapped on the balance sheet. It also examines how transforming AR automation processes will accelerate cash flow.

Person chases loose dollar bills; in the background an arrow descends to the right, indicating a recession

The signs are everywhere: Rising interest rates, continued supply chain disruptions, labor shortages, economic volatility. And they all point in the direction of the dreaded word that has every C-level executive on edge—recession.

Don’t take our word for it. Everyone from top CFOs to the World Bank are predicting a bona fide recession in early 2023. And this one will be different from the economic dip we saw in 2020.

“Central banks around the world have been raising interest rates this year with a degree of synchronicity not seen over the past five decades—a trend that is likely to continue well into next year. Yet […] the interest rate increases and other policy actions may not be sufficient to bring global inflation back down to levels seen before the pandemic,” reports a comprehensive new study from the World Bank.

Forecasts like this are tough for everyone to take in, but CFOs are especially alarmed. A Wakefield Research and Versapay survey of 1,000 C-level executives at companies with a minimum annual revenue of $100M USD revealed that CFOs’ top three concerns for cash inflows are: inflation (60%), rising interest rates (58%), and labor shortages (48%).

Rising inflation is already causing an increase in material and production costs that are eating into profit margins. And increased interest rates are making the cost of credit higher, removing the option for affordable financing from financial institutions. This also creates a need to be more stringent about extending credit to customers.

Optimizing cash flow is a concern when a recession looms in the distance. In this article, we’ll share six strategies for freeing money from being trapped on the balance sheet. We’ll also discuss how transforming accounts receivable (AR) processes will help you get there.

6 proven strategies CFOs can use to keep cash flowing

When facing a recession, CEOs often turn to their CFOs for solutions that ensure the business continues to thrive. This is a lot of responsibility, but the finance department is uniquely equipped with levers they can pull to ensure cash keeps flowing. Here are six strategies for keeping cash flowing:

1. Cut down on expenses

It’s important to carefully consider which expenses are vital to ensure everyone across the organization can do their job well—and which ones can be restored when there’s more financial room for “nice-to-haves”. Common areas to cut include:

  • Office supplies: Take a good look at what you’re ordering for in-office or remote employees and consider putting price or count limits on higher-cost items such as furniture and technology. You may also want to look for alternative vendors or discuss volume pricing and other discounts with existing ones.

  • Insurance policies, utilities, and financial accounts: Review policies and account fees and meet with an account representative for each of these common expense items to negotiate the best rate.

  • Warehousing and office space: Are you using every square inch of your owned or leased spaces? Since the pandemic paved the way for remote work, many companies are looking at renting space they aren’t using or selling it altogether. Bringing in cash from subletting or reducing expenses by moving out of a high-rent space can help restore cash flow to any business.

2. Focus on employee retention and training

Recruiting and training new employees is expensive. The Society for Human Resource Management estimates the cost of a new hire averages $4,129 and it takes about 42 days to bring them on. Additional “soft” costs, such as time department leaders, managers, and human resources must take away from their own duties to screen candidates, means that number often slides to three to four times the new hire’s salary.

And then there’s training.

Investopedia reports that companies spent $92 billion from 2020 to 2021 on new employee training. You can avoid much of these costs in your financial department by keeping your employees satisfied enough to stay put.

It may seem counterintuitive to spend money when a recession looms, but investing in employee retention programs and long-term remote work enablement technologies, increasing compensation and benefits, and providing more flexibility and autonomy to employees can go a long way to ensuring the right professionals remain in the right jobs.

3. Focus on customer acquisition and retention

All companies want to create the conditions for “happy, active, sticky customers” by offering high-quality products and world-class service. But here’s an action item for the finance folks: don't neglect customers' experience of the payment process.

According to PYMNTS, 85% of B2B buyers value a positive experience with their partners as much as their products and services.

So how do you ensure customers' payment experience is just as positive as every other interaction they've had with your company so far? Give them more convenient payment options and make it easier for them to communicate with your AR team.

Online payment portals are a great way to achieve this, as customers can fully self-service and make payments at whatever time suits them.

Online portals that give customers an easy way to get in contact with your AR team also go a long way in preserving customer relationships.

The source of payment disputes that can potentially burn bridges with customers is often miscommunication in the invoice to cash process, our research finds. In our survey with Wakefield, 82% of executives reported that miscommunication in the payment process led to their company losing work.

By prioritizing creating exceptional payment experiences, you set up the conditions for happy and loyal customers.

4. Do cash flow modeling

Take a deep dive into how cash moves through your organization, from start to finish. Identify where the bottlenecks are in your AR department and find solutions to remove them.

According to Anthony Jackson, a principal at Deloitte Transactions and Business Analytics, “Cash flow is usually projected by performing a 13-week direct cash flow analysis.” He recommends gathering and analyzing data to build a detailed model that projects where cash comes from and where it’s spent on a weekly basis.

5. Bring financial data to other areas of the business

Russell Lester, Verspay’s VP of Financial Planning and Analytics, says businesses have never had more insight into customer behavior across the lifecycle than they do now. And a lot of that data comes straight from finance departments.

“Finance has access to the data that does things like shine light on whether the sales cycle has sped up or slowed down, adoption rates, implementation cycles, and pricing effectiveness. If a company can get teams talking to each other about what they’re seeing in the numbers and what might be causing it, they’ll see what’s driving those numbers—and how they can optimize things like cash flow.”

6. Address late payments

It’s understandable—and just good business practice—to ensure customers pay in full and on time. While you can do things like offer early payment discounts, charge late fees, and not accept time-consuming and costly paper checks, it’s wiser to solve the problem at its root cause. This is usually manual accounts receivable process flows.

Investing in software that can automate tasks that typically slow down your AR team's ability to collect on payments (like manually sending out reminders and dunning letters) helps you get cash in the door faster.

How digital transformation in AR accelerates cash flow

Digital transformation is one of the most important levers to pull if you want to ensure a steady cash flow throughout the business. Accounts receivable is arguably the area of your business that's most primed for automation—and has the most immediate impact on cash availability.

Here are two ways that digitally transforming your AR function can safeguard cash flow during a recession:

1. Transformation enables efficiencies

Accounts receivable automation in particular helps finance teams streamline key functions related to keeping cash flowing in, such as invoicing, payment processing, and collections. This also paves the way for employee retention by giving AR professionals the time to do more satisfying work like cash flow modeling and partnering with other departments to parse financial data.

The most efficient AR automation solutions are cloud-based and can sync automatically with your enterprise resource planning (ERP) software. This kind of platform results in substantial gains in AR efficiencies and accelerated cash flow.

Cash application is also simplified because automated solutions match invoices, automatically identify and validate deductions and discounts, and map customer reason codes back to ERP systems. Some solutions are AI-based, which ensures that the longer and more often the system is used the more sophisticated it will become over time.

2. Transformation improves customer experience

In addition to reducing bottlenecks and keeping cash flowing, transforming your AR function solves an issue that CEOs feel especially vulnerable about: customer satisfaction in the AR environment. Customer experience is particularly important during a downturn.

In our research with Wakefield, we found:

  • 81% of CEOs admit that AR processes can be a source of negative customer experiences

  • 72% of executives across the C-suite agree that their AR processes are not customer-oriented enough

  • 85% of executives across the C-suite report that miscommunication in the payment process has resulted in invoices not paid in full

Traditional means of communication between accounts receivable and accounts payable teams usually take place over phone or email, where information can get lost or misunderstood. This often leads to late payments, invoice disputes, and other issues that pit AR and AP against one another.

A collaborative AR solution cuts miscommunication off at the pass by putting everyone in the same platform where they have access to the same information and can communicate directly in real time.

This speeds up the invoicing, payment, and cash application processes so that cash can flow more freely.

    An automated, collaborative AR solution is your recession-busting tool

    As a recession looms over financial markets around the world, it’s imperative for CFOs to not only safeguard their cash flow but launch a strong, strategic, and sustainable resistance to economic turbulence.

    A digital transformation of your AR processes automatically addresses many of the strategies CFOs consider when preparing for a downturn and ensuring that cash flow is not stuck, including reducing expenses, focusing on employee and customer retention, bringing financial data to other areas of the business, and addressing late payments.

    Investing in new technology to improve customers’ billing and payment experience will have more powerful implications than simply improving efficiency. With benefits like happier customers and employees, and no more cash flow bottlenecks, you may find you’re more competitive in the marketplace than ever before.

    About the author

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    Heather Hudson

    Heather Hudson is a Toronto-based journalist and writer who specializes in writing compelling content for SaaS businesses, particularly in fintech and personal finance.

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