When we arrive at a world post-COVID-19 and the dust has settled, businesses will find themselves in a vastly different landscape than they did just over a short year ago.
By McKinsey & Company’s estimates, the rate of digitization for businesses across all industries accelerated by seven years just in the onset of the pandemic. With more business taking place online and workforces likely to remain at least somewhat remote long-term, the way we work together—as buyers and suppliers and as internal members of an organization—is being fundamentally reimagined.
In our April instalment of our Finance and Accounting Masterclass webinar series The Digital Shift, we polled finance and accounting professionals on what their plans for their remote work policy would be after the pandemic. The majority responded that they would either adopt a fully flexible model where employees choose when and if they want to be in-office (30%) or they didn’t know yet (45%). Only 10% said they expected to go back to working in-office five days a week.
Whether a business succeeds in this emerging digital economy will largely depend on how good they get at digitally collaborating with the companies they transact with and enabling remote collaboration between internal teams. In this blog, we’ll introduce you to the concept of collaborative commerce, and why applying this approach to the order-to-cash cycle can make navigating the new normal much simpler.
What Is collaborative commerce?
“Collaborative commerce” is a term coined by Gartner, defined as “electronically enabled business interactions among an enterprise’s internal personnel, business partners and customers throughout a supply chain.”
Essentially, collaborative commerce describes a model where there's technology to support every aspect of a business’ interactions, which could be between their own employees or with people outside the business like partners and customers.
Beyond making it easier for buyers’ and suppliers’ teams to communicate, collaborative commerce aims to get their systems working in lockstep, so that routine operations can get completed automatically, without need for intervention.
Imagine a world where billing, payment, and cash application all happen automatically, triggered by your customers’ accounts payable (AP) systems talking to your accounts receivable (AR) systems. This depth of system connectivity may still be a ways away, but these kinds of interactions are already happening.
“Much of what happens between organizations on both sides of a purchase on AR is fairly routine,” says Versapay CEO Craig O’Neill. “It involves sharing information and managing follow-ups, which systems are good at doing. When there are problems to solve and more information is needed to get to a resolution, that’s where people can step in—a process that systems can support too.”
In making the switch to remote work, more businesses started thinking about how to fully digitize the order-to-cash process. With the pandemic forcing many businesses to become digitally savvier, the final mile of collaborative commerce—where systems interact to handle routine processes automatically—may be in sight.
3 areas where collaborative accounts receivable shines
So what does this collaborative approach to AR look like in practice? These three core AR challenges are strong candidates for enhancing processes with better connectivity of systems and people.
A clear opportunity for enhancing the accounts receivable cycle with technology is in the way you invoice your customers. With smarter invoicing systems, you can give your customers more options for receiving their bills—whether it’s via electronic data interchange, email, integration with their AP system, or a dedicated online portal. In doing this you make it easier for your customers to know what they owe and better accommodate their business’ unique processes.
2. Cash application
One major hurdle for many AR teams is the process of applying payments to their appropriate invoices when remittance data doesn’t travel with the payment. This is made even more complicated when discounts and credits are involved.
Putting systems in place to automate that cash application process eliminates a lot of the hassle that ends up holding up payment. It also puts you in a position to offer a better payment experience to your customers by not having to be so discerning with the payment methods you accept based on how equipped your back-office is to handle applying them.
3. Dispute management
Inevitably, discrepancies arise throughout the order-to-cash process that systems aren’t equipped to deal with. Like, when a customer makes a partial payment without providing a reason. Identifying and smoothing out any issues stalling payment becomes much easier when you have integrated tools for communicating within your organization and with your customers. These are most effective when they centralize all that collaboration online and in one place.
The benefits of embracing collaborative accounts receivable
Rethinking your approach to accounts receivable with collaboration—both between systems and individuals—can lead to some transformative changes:
- Lowering customer churn—Customers’ experience throughout the billing and payment process impacts how they feel about doing business with you and can potentially sway their loyalty as a result.
- Minimizing manual tasks—By letting systems handle much of the routine work of accounts receivable through enhanced integrations, your AR team gets to focus on higher-value tasks.
- Eliminating paper processes—By sending invoices electronically, from system to system, and encouraging payment options alternative to checks, you can outright eliminate paper from your AR operations.
- Improving DSO and cash flow—Giving customers convenient methods to pay online and solving potential disputes early leads to faster payment, contributing to lower days sales outstanding (DSO) and higher cash availability.
- Increasing efficiency of working capital—With closer system integration and collaboration between you and your customer, you get complete visibility into the status of your receivables, helping inform how you manage working capital. If you’re managing customer payments and AR with dedicated software, you can likely access a wealth of data shedding light on customer behavior.
A future where collaborative commerce is the norm
A reality where systems connect so closely that most routine business processes happen in the background automatically is still years away. But with the last year having shown us just how fast digital transformation can advance when the pressure’s on, we may be seeing collaborative commerce become commonplace for B2B payments much earlier than we think.
“The ultimate vision of systems talking to each other and doing most of the work involved with AR payments—with just the outliers being handled by teams—is probably years away,” says Craig. “But, the ability for suppliers and buyers to connect online and have some level of system interaction is available right now."
Even as conversations about returning to office pick up for some companies, many employees aren’t keen to go back. In a survey ran by the Society for Human Resource Management, 52% of Americans said they would choose to work from home permanently if given the option. Facing a long-term need to manage teams and processes without depending on employees being in office, we'll likely soon see businesses embracing collaborative commerce in droves.
This blog was based on a session from our Finance and Accounting Masterclass webinar series titled “Collaborative Commerce and the Post-Pandemic New Normal.” You can watch the full session on-demand here and find details about upcoming webinars in the series when announced.