Why Your Organization Needs to Automate AR in 2023

Organizations know that cash is critical to the success of their business. Yet many AR departments rely on inefficient, manual processes, and outdated technologies that fail to support optimal cash flow.

Companies facing new financial challenges, such as unprecedented high interest rates and crippling supply chains, are understandably hesitant to make new changes. However, staying with the status quo could make them more vulnerable to volatile market forces and even jeopardize business viability.

It’s time for organizations that haven’t yet optimized their AR processes to examine how their teams are currently meeting these challenges and ask themselves: how much time and money could we save if we automated AR processes and what else might we gain?

The Risks of Not Automating AR

Think about the role that AR plays in your organization. Broken down, AR’s reach impacts three vital financial statements:

• Balance Sheet—a company’s ability to quickly turn debtors has an enormous impact on its working capital and profitability

• Revenue Statement or P&L Account—late payments in the form of aged debt and non-payment or bad debt can greatly influence an organization’s bottom line

• Cash Flow—it’s essential to quickly release cash from debtors and make it available so organizations can meet operational and strategic objectives

Given AR’s reach, improved efficiencies enable smarter payment-processing decisions and narrow the window of time needed to close. If companies incur unnecessary delays, they are forced to hire more staff and increase staff hours. Conversely, if companies opt not to hire more staff, cash collections operations would suffer and ultimately impact business health.

A failure to optimize AR departments can even cause corporations to face an existential crisis resulting from bad debt and borrowing to cover cash flow. Over the next year or so, credit insurers predict an increase in insolvencies of 25%.

Finance leaders around the world—regardless of their industry—seek to accomplish basic and vital goals that include:

• Freeing up cash at the soonest opportunity

• Gaining clear visibility and leveraging insightful analytics

• Retaining employees and maintaining positive morale

• Strengthening customer relationships

• Closing as quickly as possible

And yet, many companies struggle to achieve these objectives, or they’re only able to excel at one or two. What’s often standing in the way is a failure to adopt new technologies that could improve efficiency and save time. In the AR realm, for example, companies simply can’t make strategic gains if employees are wasting time working with inaccurate data, duplicating manual efforts, or chasing payments that have been inaccurately applied.

Instead, a key objective should be for all employees from the CFO level down to use as much of their time as possible to perform value-added tasks that support a company’s long-term strategic goals.

AR automation creates time with a variety of technologies, including:

• Leading Analytics and Reporting that measure performance with key reports such as evaluation of the actions taken by credit controller and the success of collection strategies

• Machine Learning and AR Intelligence that provide not just data, but analytics that previously had been difficult to mine or interpret

• Predictive Analysis that tracks customer behaviors, cash flow predictability, and payment performance to improve decision-making

Here are just some of the benefits of using automation technology to optimize AR performance:

• Quicken order-to-cash processes—release cash from customers using next-generation, intelligent automation to maximize working capital

• Maximize AR team capacity and efficiency—improve productivity and morale while reducing costs by eliminating manual and error-prone processes

• Elevate AR intelligence and data-driven decisions—access decision intelligence in real time to speed and improve accuracy of transactions

• Improve Customer Relationships—become a great business partner with clear communication and more efficient operations

These benefits can be realized even as payment processes increase in number and complexity and organizations scale, whether they grow organically or through acquisitions.

As companies have begun to get their post-COVID bearings and more employees are going back to the office, things may seem like they’re returning to normal, but it’s clear that global financial market behaviors are anything but normal.

The cost of borrowing continues to climb, leaving many companies wondering how to improve cash flow and leverage working capital. Without the ability to make those gains, they can’t invest in new business ventures, hire new staff, and purchase new technologies—key ways to gain an edge over their competitors.

Even companies with cash in abundance may not have the AR discipline to make that cash available. Instead, those funds sit and aren’t invested for long-term growth and big picture business objectives. Meanwhile, supply chain disruptions compound the challenge of planning or executing what’s next.

Finance functions, like so many others, are suffering from an unprecedented labor shortage, and so finance leaders must look at solutions that aren’t dependent on staff expansion. It’s why conventional AR processes that tend to be labor-intensive should be replaced with automated processes. This is in keeping with investment in advanced automation technologies across the board that has been estimated to grow to more than $19 billion in 2023 despite anticipated cuts in other areas of IT spending.

Transforming AR in this way frees up staff to focus on more meaningful decision-making and perform the kinds of value-added tasks they aspired to do when they first got into this work. By relieving them of many menial duties, morale goes up, and companies are in a much better position to improve staff retention and attract top talent.

For organizations to efficiently process AR transactions, they need to be able to continually access a standardized system and maintain a clear view of AR activities across their ecosystems. Enterprise Resource Planning (ERP) systems can’t accomplish these vital needs for the following three reasons:

1.     ERPs aren’t designed to scale or mitigate unexpected market swings. The dynamic and turbulent nature of the global economy requires technology that’s built for resilience.

2.     ERPs usually are siloed, disparate systems, because as operations expand, often through acquisition, companies “inherit” ERPs that don’t seamlessly work together.

3.     ERPs hold vast amounts of data, but that data is difficult to mine and use without significant time and effort.

When it comes to AR, ERP’s lack of machine learning or artificial intelligence (AI), which imitates a human’s ability to problem solve and remember a huge amount of data, makes things inefficient and open to error. Machine learning saves companies a tremendous amount of time because it builds on its “knowledge” of every AR transaction. In contrast, an ERP trying to automate an AR process would typically require an IT department to open a ticket and then key in specific rules of a specific customer transaction. With machine learning, the first time a customer’s payment is received, AR would apply down the transaction. Then, the next time a transaction from that customer occurs, the system uses what it’s learned and automatically manages transaction data appropriately.

Powerful dedicated AR solutions can be especially important to organizations that employ multiple ERPs, such as those that have undergone acquisitions and mergers. In these situations, the parent organization can use AR visibility tools and out-of-the-box connectors to streamline integrations and get a unified picture of its cash situation and the impact of new AR processes and systems.

The best place to start to improve AR processes is to evaluate friction points that cause delays. Specifically, companies should ask themselves:

• Where are manual processes causing unnecessary payment delays or duplicate work?

• Do we have visibility across departments to properly analyze AR-related data?

• Are operational delays interfering with our ability to communicate with and foster strong customer relationships?

• What AR processes could have the greatest impact on long-term time savings if they were automated?

Failing to take steps to respond to AR slowdowns exacerbates risk, and that risk is compounded by today’s volatile market. Now is the time for corporations to take steps toward transforming their AR systems so that they can increase efficiencies, free up cash flow, and strengthen financial strategies.

Companies are always seeking ways to improve their accounts receivable performance, but as they battle today’s unrelenting, unpredictable market headwinds—such as rising interest rates, constrained working capital, and supply chain disruptions—more of a transformation is needed.

To navigate these market forces, organizations should expedite the implementation of automated processes and technologies and adopt automation tools, such as machine learning and AR intelligence, which pave the way for improved decision making.

With AR automation, companies can experience quicker closes with fewer touch points and free up cash that can be invested to help an organization grow. They can give back valuable time to CFOs and AR teams so that all can focus on the actions that drive optimal business outcomes. In addition, companies that modernize their AR departments gain an ability to retain and attract top talent and strengthen customer relationships.

Learn more about how your organization can raise the bar in AR with BlackLine’s AR solutions.