How to Unlock Working Capital & Cash Flow From Accounts Receivable Management Processes


With the fast-changing pace of COVID-19 threatening global economies, Deloitte produced a recent report with a very clear message:

“The focus of most businesses is now on protecting employees, understanding the risks to their business, and managing the supply chain disruptions caused by the efforts to contain the spread of COVID-19. The full impact of this epidemic on businesses and supply chains is still unknown, with the most optimistic forecasts predicting that normalcy in China may return by April 1, with a full global recovery lagging depending on how other geographies are ultimately affected by the virus.

“However, one thing is certain: this event will have global economic and financial ramifications that will be felt throughout global supply chains, from raw materials to finished products.”

With this top of mind for organizations and specifically CFOs, the need for cash is now a more critical priority than ever before, and to simply do nothing is not an option. Those who act now will be best prepared for the uncertain times ahead.

According to a recent PwC report, there is €1.2trillion excess working capital tied up on global balance sheets. But only 8 out of 18 sectors have proactively increased their working capital by harnessing automation and optimization technologies. Outside of economic and historic factors that can keep cash locked away, the CFO faces a new set of challenges within their role.

According to Ernst & Young, 69% of CFOs see their role fundamentally changing, forcing them to think differently, act as a strategic partner to the CEO, and lead the digital transformation of the finance function. Many CFOs are already on their automation journey, but have yet to recognize where cash is hiding, how to release it, and how to navigate a global pandemic.

Historically, cash flow has improved by shortening collections and extending payments. The relationships with customers and vendors are often strained in the process, with finance teams bogged down in ‘survival mode’. Repetitive tasks like manual cash application dominate the working day with zero time to spend on strategic value add activities.

As economic factors change over time, and uncertainty in the market causes procrastination, so does a company’s ability to manage their accounts receivables—but this is where the cash is hiding.

PwC also cited that finance leaders have recognized that in the next five years, increasing working capital is the next value driver and that automating accounts receivables is a major source of opportunity.

The role is undergoing perhaps its greatest change in recent history, with fundamental changes in how the CFO must now operate in order to be considered effective.

The list of responsibilities the CFOs are tasked with is also overwhelming. They need to create value, contribute to the strategic vision of their organization, and predict the future—all while navigating a volatile global economy fraught with uncertainty.

Each decision made is vital to the organization and for CFOs. They need to find innovative ways to improve the accounts receivable function such as the cash application process, which allows more resources (time, money, effort) to improve cash collections.

Historically, firms have looked to optimize three key aspects of working capital—namely cost-cutting, inventory management, and delaying the accounts payable process. These functions are already considered strategic, yet accounts receivables are often the largest entry on a balance sheet and have traditionally been an administrative concern. However, as the fourth key factor of optimizing working capital, accounts receivables offer an untapped opportunity for innovation in optimizing working capital.

A rethink is required to ensure that the credit, collections, and dispute functions unlock the true value tied up in the accounts receivables function by taking a more strategic and value-driven approach. If conducted successfully, this will not only keep cash flowing through a business but also free up funds for future growth investment.

Turning from Tradition

Standard methods of increasing cash flow are to increase prices to improve margins, reduce overhead, and improve inventory control. But what about the money already owed to you by your customers? You’ve earned it, but you can’t spend it. In large organizations, that can mean millions of dollars being held hostage.

Today’s finance leaders must focus on adaptability, flexibility, and balance to create the agility that’s required for success. Many organizations are finding ways to speed up customer insight in order to understand which customers hold the most value and which hold the most risk. This, in turn, helps create a more predictable cash flow and the stability to effectively plan, invest, and grow, as well as reduce borrowing and increase profit.

The need for good credit management to protect your cash flow and working capital becomes even more critical at a time of uncertainty due to economic factors such as Brexit, the Coronavirus, political turmoil, etc.  Intelligent automation technologies are becoming the answer for CFOs to improve working capital management.

Savvy CFOs Are Looking at Their Biggest Asset to Unlock Cash

How? By automating and harnessing customer financial data. By turning accurate data into wisdom, you can understand and reliably predict customer payment behaviors.

The new CFO cohort is acting more proactively, finding ways to harness emerging technologies like intelligent AR Automation and Artificial Intelligence to navigate the tricky landscape and drive business growth through unlocking more working capital.

For a long time, the automation of accounts payable has been common practice in finance teams—but they are now starting to use intelligent automation to manage debtors and working capital, increasing cash availability.

Act Now to Emerge Stronger

With the right financial management strategies and intelligent automation, your company can emerge stronger than ever. But you can’t wait. The time to gather cash reserves and improve efficiencies is now.

Ready to get started with automating your cash application process? You can learn more here.