Why Accounts Receivable Deserves More C-Suite Attention

You want to get paid. That’s what every department in your business is working toward, right?

If so, then why is it that the business function that looks after that ultimate goal of getting cash in the door—accounts receivable (AR)—historically gets very little attention or budget for digitization and hiring?

In a survey we ran of 1,000 C-level executives at companies with a minimum annual revenue of $100 million USD, we learned that 60% of respondents agree that their AR departments haven’t been prioritized as much as others for digitization.

That leaves many AR teams making do with dated and inefficient processes like creating and sending paper invoices, processing high volumes of checks, and matching payments to invoices manually.

And the consequences of operating this way are significant. Research from PYMNTS and American Express finds that businesses that rely on manual AR processes tend to have 30% longer average days sales outstanding (DSO) compared to businesses with medium to high levels of automation in their processes.

With high interest rates making it harder for businesses to borrow capital, companies should turn their attentions to the cash that’s stuck on their balance sheet due to long collections cycles. Beyond freeing up working capital, automating your AR processes also delivers better customer experiences, paving the way for higher retention rates and customer lifetime value.

In this article, we’ll discuss the impact that the accounts receivable department has on the rest of the business and why C-level leaders that invest in improving AR processes uncover outsized benefits.

3 reasons to invest in better accounts receivable processes

1. Faster receivables turnover helps ease the cash crunch

The last several years of economic turmoil have created a cash crunch for most businesses. A 2021 survey by the Institute of Finance and Management (IOFM) found that:

• 59% of businesses have experienced an increase in average days late
• 48% of businesses are experiencing an increase in aging balances, and
• 34% of businesses are seeing an increase in days sales outstanding

So, overdue invoices have gotten worse on all accounts: customers are carrying larger outstanding balances and are paying them increasingly late.

As a result, many organizations are left with less cash on hand to pay employees, pursue investments, or react quickly to emerging market opportunities.

While the state of the economy might be outside of your control, inefficiencies in your invoice to cash process are something you can fix right now.

Investing in better AR processes will allow your business to collect and reconcile payments faster, freeing up much-needed working capital sooner. A key way to improve your AR processes is to introduce software that can automate painstakingly manual tasks like issuing invoices, sending collections reminders, and posting payments.

2. Billing and payments are a pivotal part of the customer experience

In 2020, customer service and experience were predicted to overtake price and product as the primary brand differentiator. A critical part of that experience that many B2B organizations overlook, however, is the billing and payment process.

Your customers want to do business with partners who are easy to work with. If you empower them to pay the way they want—be it digitally or via paper—the more they’ll want to work with you.

Conversely, if you make it hard for customers to navigate the billing and payment process, they may choose to take their business elsewhere.

A frequent source of frustration in the B2B payment experience is when buyers communicate with AR teams to address invoice discrepancies, request information, or verify a discount.

In our survey of C-level executives, we found that 82% of respondents say they’ve lost work due to miscommunication between their AR team and customers during the payment process. More than half of them (42%) say this has happened multiple times.

It’s clear then, that the accounts receivable department has as much of an impact on customer experience as the business functions traditionally thought as customer-facing such as customer service and sales. And yet, the latter seems to get prioritized for technology investment far more. A resounding 96% of C-suite leaders agree that they still have work to do in digitizing their AR.

Standing apart from competitors by creating exceptional payment experiences is about meeting customers where they are: what kind of payment options do they prefer and how can you accommodate? How can you make the experience of viewing and paying invoices easier for your customers?

By and large, the answer to these questions is accounts receivable digitization.

3. More timely posting of payments supports faster decision-making

While the purpose of accounts receivable is to collect cash, organizations also depend on their AR function to collect something potentially even more valuable: data.

Finance leaders depend on timely posting of payments to accurately report on cash flow and carry out their forecasting and strategic planning. Highly manual cash application processes make it difficult to post payments on a dependable timeline. This means for any reporting you put together, you’re likely not getting an accurate representation of the current status of receivables.

Investing in better (and less manual) AR workflows is vital to producing up-to-date and centralized data that CFOs and other C-suite leaders can use to understand the health of the company at any given point.

The AR process itself also reveals data that helps you understand customer behaviors, including how they pay and when, which can help you find new ways to optimize the payment experience.

Rather than be out-of-sight out-of-mind, investing in accounts receivable gives this department an opportunity to become a trusted advisor to the whole organization, says Versapay’s CFO Russell Lester.

“[The CFO and the people they represent] have access to data and both qualitative and quantitative insights that offer a greater understanding of what customers are doing and how they’re behaving in funnel stages and across the lifecycle,” he says. “[The finance department] is in a unique position to help accelerate the company’s growth by ensuring everyone stays focused on what matters most: the customer.”

How to get started with AR automation: 4 priority areas with the most impact

If it’s not clear by now, one of the greatest investments you can make towards improving your AR function is to digitize your processes. Eliminating paper and manual work from your AR as much as possible helps this critical business function drive the full value it’s capable of.

When first introducing digitization into your AR processes, it’s hard to know where to start. Here are four areas you should focus on when it comes to rolling out accounts receivable automation.

• Accepting more digital payments
• Automating cash application
• Giving your team better visibility into the status of AR
• Collaborating with your customers over the cloud

1. Accepting more digital payments

One of the first actions you can take to improve your AR processes is to support a greater volume of digital payments, especially if you’re currently relying on paper checks to collect on most of your invoices. Many of the efficiency gains from AR automation software like automated collections and cash application rely on digital payment rails.

Digital payment methods like credit card and ACH also settle faster than checks and eliminate the issue of check float. This increases the speed at which customers can pay, so you can redeploy that cash sooner.

By expanding your payment options, you also give your customers complete freedom to pay using whatever method and channel they choose. Providing this level of convenience is an important part of what makes a superior billing and payment experience.

It also provides one more demonstration that your business is innovative—not only in the products or services you deliver, but in all the ways you manage your business relationships.

2. Automating cash application

Even if you support more digital payment methods, you’ll still inevitably have customers who want to pay with checks. AFP’s 2022 Payment Cost Benchmarking Survey found that 92% of organizations continue to use checks.

That’s why it’s especially important to have tools in place that can help your AR team easily apply payments—from all channels—to their respective invoices.

Owing to the significant labor of applying payments via manual processes, AR teams will frequently dedicate multiple full-time employees to focus only on cash application. But with AR automation application software, you can automatically match over 90% of your incoming payments, helping you redeploy more of your team to higher value projects.

If you have sales or other personnel collecting payments from customers in the field, mobile capture capabilities can reduce their trips to the bank or corporate office to make deposits, freeing them to focus on their core responsibility of driving new sales.

3. Giving your team better visibility into the status of AR

We mentioned earlier that accounts receivable is an important data center for the business, in that it houses information about the financial health of the business and customers’ payment behavior.

But when accounts receivable processes lack systems integration, that information can live in several places: your enterprise resource planning (ERP) software, bank statements, payment gateways, and spreadsheets.

When looking to digitize more of your AR operations, it’s important to consider whether the solutions you’re looking at will help consolidate your data in as few places as possible. On top of this, that data should be easily accessible by everyone on your team who needs it, and in a format that’s easy to understand.

Better visibility into the status of receivables across your team through a shared tool can help bypass many of the common issues AR teams face, like accidentally duplicating collections efforts due to a lack of alignment between team members.

4. Collaborating with your customers over the cloud

As well as your internal team, it’s important to extend that visibility of the status of receivables to your customers.

The types of miscommunications that happen between AR teams and their customers during the payment process—which we know can potentially put an end to business relationships—can be mostly solved by giving customers easier access to information.

When you send customers their invoices through the mail, they might not have a clue what they owe until they see their monthly statement. And when they have questions about certain charges, credits, or discounts, it can be hard for them to get a quick answer from your team via phone or email. This creates confusion and can ultimately lead to invoice disputes.

Accounts receivable software that comes equipped with a self-service customer-facing portal can help answer customers’ questions before a member of your team has to get involved. Online payment portals with tools for your AR team and customers to communicate directly helps solve questions and disputes even faster.

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With the impact the AR department has not just on cash availability, but also on customer experience, it’s in the C-suite's best interest to invest in making that function as effective as possible. Getting away from manual processes with help from AR automation software is how your business will make that happen.

Unsure how to move forward with AR automation? Take our six-minute assessment to get a personalized assessment of your current AR processes, a diagnosis of your main challenges, and suggestions tailored to where your business is in its digital transformation journey.