AR Relationships—Pitfalls, Dynamics & Technology

The order-to-cash (O2C) process involves many parties, including those within an AR team, the Office of the CFO, and customers. Communication and collaboration, or lack of, between all parties can impact the efficiency of AR operations, in addition to when and if customers make payments. One objective of the AR in 2024: Expectations, Technology, Opportunities survey, which had more than 260 responses from AR and finance leaders, was to assess the impacts that AR communications have on AR performance and the bottom line.

The analysis of AR-related communications at the companies surveyed begins with assessing the existence and dynamics of silos within their AR teams. Only 27% of companies surveyed stated that silos don’t exist within their AR teams (Figure 1). Companies where AR silos exist, must understand why they exist and invest in mitigating them.

Survey respondents were asked to share the biggest reason AR silos exist at their company (Figure 2). Over 30% of companies do not see AR silos as a problem that needs to be addressed. 21% report there is no reason for the existence of silos within their AR teams, and another 11% report there is no incentive for AR teams to collaborate. 68% of companies would mitigate the leading cause of AR silos by investing in the right technology that empowers visibility across AR operations and facilitates collaboration.    

The analysis of AR silos included an assessment of the type of AR silo that has the most significant negative impact on AR performance (Figure 3). Silos that include cash application as a counterparty account for 60% of the silos with the largest negative impact on AR performance (cash application and collections 28%, cash application and credit 18%, and cash applications and deductions 14%). Credit, as a counterparty, accounts for almost 40% of the most damaging AR silos: credit and collections 25% and credit and deductions 14%. Any AR silo can have a meaningful impact on AR performance, and the silo that has the most impact varies across survey respondents.     

AR silos cause damage to customer relationships and a company’s bottom line. Companies should realize that silos exist, determine why, and then take action to mitigate each silo.

AR communications with customers represent another dimension of communication from an AR team that can impact efficiency and significantly impact the bottom line. The analysis of the efficiency of AR communications with customers included asking respondents to share if each communication with customers from an AR team member has a purpose. 83% of companies report that each communication with a customer from AR matters (has a purpose). It is important that each communication has a purpose. It is equally important that each communication is classified with a specific purpose and that the number of communications to address an issue is limited to avoid creating friction with customers, resulting in lost revenue.

Only 52% of companies classify each AR communication with each customer (Figure 5). Each customer matters, and automation can allow an AR team to classify each communication with each customer efficiently. It is important to prioritize the amount of time spent managing any customer relationship, but why lose revenue and potentially a long-term revenue stream because there is a not a culture that every customer matters. AR communication with customers also needs to be efficient. Almost seventy percent (69%) of companies surveyed manage the number of communications with customers. Effective AR communication with customers requires that each communication with each customer has a purpose, is classified with a specific purpose, and the number of communications to reach an objective is managed.

Misalignment between AR and sales teams in managing custom relationships can impact the bottom line and create an inherent barrier to effectively managing counterparty risk exposures. Almost thirty percent (29%) of companies did not agree that their AR and sales teams collaborate effectively in managing customer relationships, and only 25% strongly agree that these teams collaborate effectively.

Over seventy percent (73%) of companies have at least 6% of orders that fall outside a company’s credit policy and/or standard payment terms. Twenty-eight percent of companies have at least 16% of orders that fall outside of these policies that are used to manage counterparty risks and maximize the probability that payments are made and made on time with open AR balances that represent risk exposures that align with the company’s risk tolerance to various aspects of counterparty risks (company, country, industry, currency).    

Misalignment between AR and sales teams exists at the companies surveyed. Do they recognize the misalignment exists and needs to be addressed? Almost sixty percent (59%) report the time spent by their AR teams collaborating with sales in managing customer relationships in 2024, with 20% indicating that the time spent collaborating would increase significantly. Those companies will see the benefits of investing in mitigating the misalignment between their AR and sales teams, including positively impacting the bottom line. The other companies will continue to feel the inherent drag to the bottom line due to the lack of effective collaboration between their AR and sales teams.

Companies should identify and invest in eliminating any silos that exist within their AR teams. Companies should also invest in mitigating inherent barriers to collaboration within AR teams, between AR and Sales teams, and between AR teams and customers. Companies would do well to support technology that delivers visibility across a company’s entire O2C process and all customer interactions, eliminates asymmetries of information among AR staff, AR staff and sales, treasury, and AP colleagues, and between AR staff and customers to mitigate inherent barriers to AR success and their bottom line.

If you want to learn more about the results, inferences, and implications of the AR in 2024: Expectations, Technology, Opportunities survey, register for our upcoming webinar, AR in 2024: Trends, Expectations, Opportunities.

The order-to-cash (O2C) process involves many parties, including those within an AR team, the Office of the CFO, and customers. Communication and collaboration, or lack of, between all parties can impact the efficiency of AR operations, in addition to when and if customers make payments. One objective of the AR in 2024: Expectations, Technology, Opportunities survey, which had more than 260 responses from AR and finance leaders, was to assess the impacts that AR communications have on AR performance and the bottom line.

The analysis of AR-related communications at the companies surveyed begins with assessing the existence and dynamics of silos within their AR teams. Only 27% of companies surveyed stated that silos don’t exist within their AR teams (Figure 1). Companies where AR silos exist, must understand why they exist and invest in mitigating them.

Survey respondents were asked to share the biggest reason AR silos exist at their company (Figure 2). Over 30% of companies do not see AR silos as a problem that needs to be addressed. 21% report there is no reason for the existence of silos within their AR teams, and another 11% report there is no incentive for AR teams to collaborate. 68% of companies would mitigate the leading cause of AR silos by investing in the right technology that empowers visibility across AR operations and facilitates collaboration.    

The analysis of AR silos included an assessment of the type of AR silo that has the most significant negative impact on AR performance (Figure 3). Silos that include cash application as a counterparty account for 60% of the silos with the largest negative impact on AR performance (cash application and collections 28%, cash application and credit 18%, and cash applications and deductions 14%). Credit, as a counterparty, accounts for almost 40% of the most damaging AR silos: credit and collections 25% and credit and deductions 14%. Any AR silo can have a meaningful impact on AR performance, and the silo that has the most impact varies across survey respondents.     

AR silos cause damage to customer relationships and a company’s bottom line. Companies should realize that silos exist, determine why, and then take action to mitigate each silo.

AR communications with customers represent another dimension of communication from an AR team that can impact efficiency and significantly impact the bottom line. The analysis of the efficiency of AR communications with customers included asking respondents to share if each communication with customers from an AR team member has a purpose. 83% of companies report that each communication with a customer from AR matters (has a purpose). It is important that each communication has a purpose. It is equally important that each communication is classified with a specific purpose and that the number of communications to address an issue is limited to avoid creating friction with customers, resulting in lost revenue.

Only 52% of companies classify each AR communication with each customer (Figure 5). Each customer matters, and automation can allow an AR team to classify each communication with each customer efficiently. It is important to prioritize the amount of time spent managing any customer relationship, but why lose revenue and potentially a long-term revenue stream because there is a not a culture that every customer matters. AR communication with customers also needs to be efficient. Almost seventy percent (69%) of companies surveyed manage the number of communications with customers. Effective AR communication with customers requires that each communication with each customer has a purpose, is classified with a specific purpose, and the number of communications to reach an objective is managed.

Misalignment between AR and sales teams in managing custom relationships can impact the bottom line and create an inherent barrier to effectively managing counterparty risk exposures. Almost thirty percent (29%) of companies did not agree that their AR and sales teams collaborate effectively in managing customer relationships, and only 25% strongly agree that these teams collaborate effectively.

Over seventy percent (73%) of companies have at least 6% of orders that fall outside a company’s credit policy and/or standard payment terms. Twenty-eight percent of companies have at least 16% of orders that fall outside of these policies that are used to manage counterparty risks and maximize the probability that payments are made and made on time with open AR balances that represent risk exposures that align with the company’s risk tolerance to various aspects of counterparty risks (company, country, industry, currency).    

Misalignment between AR and sales teams exists at the companies surveyed. Do they recognize the misalignment exists and needs to be addressed? Almost sixty percent (59%) report the time spent by their AR teams collaborating with sales in managing customer relationships in 2024, with 20% indicating that the time spent collaborating would increase significantly. Those companies will see the benefits of investing in mitigating the misalignment between their AR and sales teams, including positively impacting the bottom line. The other companies will continue to feel the inherent drag to the bottom line due to the lack of effective collaboration between their AR and sales teams.

Companies should identify and invest in eliminating any silos that exist within their AR teams. Companies should also invest in mitigating inherent barriers to collaboration within AR teams, between AR and Sales teams, and between AR teams and customers. Companies would do well to support technology that delivers visibility across a company’s entire O2C process and all customer interactions, eliminates asymmetries of information among AR staff, AR staff and sales, treasury, and AP colleagues, and between AR staff and customers to mitigate inherent barriers to AR success and their bottom line.

If you want to learn more about the results, inferences, and implications of the AR in 2024: Expectations, Technology, Opportunities survey, register for our upcoming webinar, AR in 2024: Trends, Expectations, Opportunities.