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Gartner’s Insights – Four AI-Powered Accounts Receivable Use Cases For Order to Cash

15 July, 2022
6 min read
Vipul Taneja Vipul Taneja, VP, Finance Transformation
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Blocked Order Prediction
Proactive Collection Prioritization
Disputes and Deductions Validity Predictor
Data Capture from Remittances
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Gartner has traditionally focussed on publishing Magic Quadrant reports for the critical office of the CFO functions like Financial Planning and Analysis (FP&A) and Procure to Pay (P2P). They released the first-ever Magic Quadrant report for Integrated Invoice-to-Cash Applications in 2022, signifying a shift in the CFO’s priority towards automating Order to Cash (O2C) operations.

Most O2C processes like credit monitoring, collections, deductions/disputes, and cash application have been operating in silos, making it challenging for businesses to recover their working capital trapped in receivables. A/R leaders today need to build a robust tech stack that addresses the limitations of the traditional legacy software to transform O2C operations and create an agile function. In the Magic Quadrant report, Gartner elaborates on the technologies that are changing the entire landscape of O2C transformation today.

This blog draws insights from the Gartner report and deep dives into the four must-have Order to Cash use cases where Artificial Intelligence(AI)-powered technology can help A/R leaders create significant working capital improvements in the office of the CFO.

Blocked Order Prediction

Gartner’s Recommendation – A solution that predicts upcoming orders likely to get blocked by processing a customer’s historical transactional data (like their credit scores and credit limit) and analyzing their payment history and credit utilization to look for credit risk level changes.

AI-Powered Blocked Order Prediction

AI-powered Blocked Order Prediction triggers alerts to the credit and collections teams on the orders that get blocked by the system automatically. This feature saves the team’s bandwidth which would have been reserved for manually aggregating credit data from multiple credit agencies, processing the massive volume of data, and then manually blocking the orders.

Credit analysts can focus on releasing the blocked orders based on the recommendations and feedback they receive from the sales team. They can also ask the collections team to send out dunning correspondences to the customers for making a payment. Once the customer makes the payment, the AI-powered system will automatically capture the payment data, match it with the corresponding open invoices in the ERP, and release the blocked order automatically. This feature helps A/R leaders fast-track the cash application process and improve metrics like Days Sales Outstanding (DSO).

Success Metrics Achieved by Tech Data

Proactive Collection Prioritization

Gartner‘s Recommendation – A solution that analyzes customers’ payment trends to segregate and prioritize the customers for dunning activities like sending follow-up correspondences.

AI-Powered Proactive Collection Prioritization

AI-capabilities in a collection software enable A/R leaders to proactively improve metrics like DSO and Collections Effectiveness Index (CEI) in the following three-fold manner:

    1. Segmenting customers dynamically based on risk categories
    The system will extract credit data from multiple credit bureaus and leverage the customer data in the ERP to analyze their payment history and credit utilization. It will then segment them into risk categories like high, medium, and low-risk risk buckets.

    2. Prioritizing the collector’s daily worklist
    Based on their risk segmentation, the AI-powered system will create a prioritized worklist for collectors by placing the high-risk customers on the top for them to follow up.

    3. Predicting receivables collection dates
    The system can predict the payment dates of customers by analyzing customer payment history (when the customer usually makes the payment) and correlating that information with the current open invoices for the customer.

These capabilities allow collectors to focus heavily on optimizing the collection strategies for customers from different risk categories to ensure that every dunning call or correspondence they make results in payment collection.

Success Metrics Achieved by Ferrero

Disputes and Deductions Validity Predictor

Gartner’s Recommendation – A solution that leverages insights from shipment and delivery data like Bill of Lading (BOL) and Proof of Delivery (POD) and analyzes the historical trends of the customer making payments and raising dispute claims to predict the validity of a new dispute/deductions.

AI-Powered Dispute Validity Predictor

Deduction teams manually research 90-100% of disputes/deductions to identify their validity. Processing all the relevant data consumes a significant portion of the team’s daily bandwidth and delays the resolution of open disputes, leading to a poor customer experience. An AI-enabled dispute and deductions validity predictor proactively determines if a claim is valid or invalid by aggregating the data from sales invoices, commitments from the Trade Promotion Management(TPM) team, and POD and BOL documents, analyzing the past deduction resolution patterns of the team.

With the system performing all of these low-impact actions, the deductions analyst can dedicate their time and efforts to fast-track the resolution of the vast volume of deductions. The technology allows A/R leaders to improve customer experience and recover the working capital trapped in invalid deductions by improving critical metrics like Days Deductions Outstanding (DDO) and Net Recovery Rates.

Success Metrics Achieved by Land O’Lakes

Data Capture from Remittances

Gartner’s Recommendation – A solution that can aggregate and process the payment and remittance information from various sources (emails, EDIs, customer A/P portals) and multiple payment formats (EFTs, cheques) to match the customer payments against the open invoices automatically.

AI-Powered Data Capturing from Remittances

AI-powered capabilities reallocate a cash application analyst’s bandwidth by processing all the information collected from different sources and formats using email parsing, EDI parsing, web aggregators, and Optical Character Recognition(OCR) engines. This allows the cash application team to focus more on handling exception cases like missing remittance scenarios where a customer hasn’t shared a remittance. In such cases, AI can help analysts by identifying the missing remittances for payments and recommending the next actionable steps.

This technology enables A/R leaders to fast-track the cash application process and improves the hit rates for cash posting.

Success Metrics Achieved by Danone

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Most A/R leaders are tasked with optimizing the operational silos across their Order to Cash processes to safeguard cash flow and improve working capital. The insights from the Gartner Magic Quadrant report for Integrated Invoice-to-Cash Applications imply that A/R leaders must build a robust tech stack with integrated capabilities to reduce critical metrics like DSO, DDO, and bad debt.

HighRadius equips global A/R teams with an integrated solution that addresses the limitations of traditional O2C software by leveraging data and advanced technologies. This has led to its recognition as a ‘Leader’ in the 2022 Gartner Magic Quadrant report. The report placed HighRadius in the top-most quadrant, with the highest score across ‘Ability to Execute’ and ‘Completeness of Vision.’

Free Gartner Magic Quadrant Report

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HighRadius Integrated Receivables Software Platform is the world’s only end-to-end accounts receivable software platform to lower DSO and bad-debt, automate cash posting, speed-up collections, and dispute resolution, and improve team productivity. It leverages RivanaTM Artificial Intelligence for Accounts Receivable to convert receivables faster and more effectively by using machine learning for accurate decision making across both credit and receivable processes and also enables suppliers to digitally connect with buyers via the radiusOneTM network, closing the loop from the supplier accounts receivable process to the buyer accounts payable process. Integrated Receivables have been divided into 6 distinct applications: Credit Software, EIPP Software, Cash Application Software, Deductions Software, Collections Software, and ERP Payment Gateway – covering the entire gamut of credit-to-cash.

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