The 5 Myths of AR Automation

Welcome to this episode of Extra Credit, a weekly podcast from the National Association of Credit Management, where you can expect to hear from different credit professionals. This installment is a discussion with Andy Lilley, Managing Director of Invoice-to-Cash at BlackLine about the results of the State of AR Automation 2024 survey.

Give it a listen and then read on to discover 5 myths of AR automation.

A lot of time and planning goes into managing the accounts receivable arm of a business. It not only requires that the right team be brought together, but the organization must adopt a robust technological solution that efficiently processes payments and assists with determining effective collections processes.

However, how different organizations set up their AR departments can vary greatly from one to the next.

To better understand these variances, BlackLine and the National Association of Credit Management (NACM) conducted a survey that asked how AR teams collect payments and what kinds of technologies they use.

Andy Lilley, Managing Director of Invoice-to-Cash at BlackLine, notes two huge takeaways from the survey: 

• "A high percentage of organizations rely on manual, inefficient processes to manage AR processes and have held off on automating them, even though many are aware of the short- and long-term benefits."

• "According to surveys, organizations that adopt automation see a 21% improvement in processing speed and a 45% reduction in manual data entry error.”

According to the BlackLine/NACM survey, 26% of respondents said they’re not looking to automate any AR processes at this time. The survey results also show:

• 32% of respondents use manual reports and spreadsheets.

• 70% of respondents said their customers receive invoices via email.

• 43% use an ERP with no automation to manage cash application.

• 47% use email to process customer credit applications.

• 41% rely on ad hoc methods to manage collections, such as contacting customers individually when debts are overdue.

• 35% use basic features within their accounting software for reporting and analytics.

So, what’s preventing these businesses from moving forward with automation? According to the survey and our conversations with customers, the same reasons seem to surface again and again. For example, many believe they’ll be met with great resistance from within their organizations, or they anticipate running into issues trying to integrate a new system with an existing one.

While these challenges are real, they’re also often based on false assumptions about the AR automation journey. In some cases, these “myths” prevent businesses from saving significant time and cost.

Some of the benefits organizations achieve by automating the AR process include:

• Reduced processing time and increased efficiency.

• Improved cash flow and decreased DSO.

• Improved customer experience through faster and more accurate payment processing.

• Improved accuracy in invoice processing and payment posting.

• Increased visibility and control over accounts receivable.

“A study by the Institute of Financial Management found that automation led to a 20-30% increase in productivity and a 15-25% reduction in operational costs. Productivity equals cash flow, and revenue reduction in costs equals profit,” Lilley noted. 

Let’s examine the 5 myths of AR automation to see how businesses can overcome them to achieve improved efficiency and profitability.

The BlackLine-NACM survey shows that nearly half of businesses use an ERP with no automation to manage cash application. The mindset for many organizations is that they’re working with a technology that’s not going anywhere since ERPs serve as an effective data storage system. So many assume that it’s efficient to use the same ERPs to process payments.

The problem with relying solely on an ERP to handle AR processing is that it’s not a scalable or sustainable solution. It may offer enough processing power to get you through this year, but as capacity dwindles and headcount expands—which currently is the case with businesses around the world—those that don’t automate AR processes will be left behind.

Our survey shows that 22% of respondents who are ready or mostly ready to automate AR processes were stopped by a fear that they’d be met with resistance from employees or stakeholders within the organization. It’s true that most people who are used to doing things a certain way don’t welcome change, but when AR heads make the business case for automation to those on the front lines—and they realize the huge time savings and ability to expand the scope of their own job—they quickly warm up to the idea.

It also seems that the stakeholders are more receptive to the notion of automating AR processes than you might imagine. When respondents in the survey were asked about their business’ capacity for automating processes, only 18% said that their organizations were “strongly resistant” to change and preferred manual processes, while 43% were “somewhat resistant to change, but open to discussion,” and nearly 40% said they were “fully ready” to automate or “mostly ready” but waiting on budget approval.

One of the most significant aspects of process management is building a team and establishing procedure so that everyone knows their roles and how best to communicate. When an AR team seems to be humming along, it’s understandable that managers are hesitant to make even the slightest adjustment.

But when managers look at the bigger picture, they tend to realize that there are market factors out of their control that will disrupt even the best personnel strategies. Namely, a labor shortage that’s impacting businesses around the globe. It’s getting harder than ever for organizations to retain talent and expand capacity. Our survey revealed that nearly half of respondents said their collection teams must help apply payments during busy periods. When teams are stretched thin, set processes can quickly break down – hindering efficiency and productivity across the department.

When processes are automated, however, teams don’t have to adhere to a rigid set of tasks for things to keep moving. They can be more flexible knowing that things won’t fall apart if a team member, say, gets sick or takes time off. Even more so, as a result of using more efficient processes, team members get hours of time back and can manage by exception, freeing them up to focus on value-added, strategic tasks. This improves morale and job satisfaction as well as a business’s ability to retain talent and avoid capacity upheavals.

Integration issues are often the number one concern when it comes to automating AR processes. If a new system’s data can’t correspond with that of the current one, or if teams struggle to learn to use the new solution, it can create havoc within the organization.

The thing is, businesses can’t afford not to integrate (and with modern integration processes, they often find that the data integration journey is a lot easier than they expected). The current landscape shows organizations struggling to process the most basic transactions on a daily basis. According to the BlackLine-NACM survey:

• 29% of respondents said they spend too much time working out “what to do first” or reworking errors.

• 28% are challenged by the large volume of payments that must be processed.

• 24% find that a lack of visibility into the system makes it hard to manage AR.

• 19% struggle with a lack of quality data and its slow movement through the system. 

With these challenges, it’s no wonder that more than a third of the businesses surveyed were working with an AR portfolio of which 5% to 10% is past due.

When AR processes are automated, however, those inefficiencies tighten up. Teams are immediately notified when an invoice needs their attention so they can resolve issues and speed up payments, and an experienced technology partner can provide training so that a team is ready to start using the new system on day one.

Furthermore, this training doesn’t have to be limited to just how to use the system. Automation brings opportunities for procedural change, and working with the right technology provider is a great chance to take advantage of their industry knowledge and best practices.

There’s always some level of disruption to AR processes when optimization takes place, but when a business invests in a best-of-breed system, it minimizes issues. The other thing to keep in mind are the benefits that can be achieved with automation — ones that directly and positively impact customer relationships.

One of the biggest issues with working with a slow or inefficient system, especially those that don’t offer visibility throughout the ecosystem, is that customer contacts can be problematic. For example, team members may think that a customer needs to be contacted when they should actually hold off. An example would be if the customer’s payment has been made but the AR team doesn’t yet realize it.

An automated system, on the other hand, immediately notifies AR teams when a customer might need to be contacted and even how best to contact them. The system learns and provides insights into customer behaviors that highlight how a customer prefers to be contacted and what contact method has previously generated more payments from that customer. Do they respond better to a phone call, or an email, or an SMS? These data points help give the customer a better experience and keep them happy … and paying!

It’s understandable that many businesses anticipate feeling some pain when facing the prospect of automating their AR operations. But in our experience of walking with customers as they make this journey, those concerns are often unwarranted.

In our BlackLine-NACM survey, businesses laid out what they saw as their biggest focus in AR over the next 18 months. In order of importance, those goals included:

• Developing a stronger focus on customer relationship management to improve payment timelines and reduce outstanding balances.

• Implementing new AR software to streamline processes and improve efficiency.

• Strengthening internal controls to minimize the risk of fraud or errors in AR management.

• Expanding into new markets or product lines to increase revenue and cash flow.

• Implementing new payment methods or financing options to give customers more flexibility and convenience.

Automating AR processes enables businesses to support and achieve all these objectives, as well as provides them with a sustainable solution, so that they realize impactful benefits in the first year and for many years to come.