How To Accelerate Technology to Decelerate A/R Operating Costs- Complete Guide For Mid-sized Businesses

What you’ll learn


  • Learn the importance of leveraging technology to reduce AR operating costs
  • Get insights on the benefits of identifying potential revenue leaks in your AR processes
  • Understand the importance of continuous technological investment to propel revenue growth

 How To Accelerate Technology to Decelerate A/R Operating Costs- Complete Guide For Mid-sized Businesses

In the wake of the rapidly changing economy, mid-sized businesses around the world are moving towards leveraging technology as a solution to enhance business resilience and flexibility to accelerate growth. More often than not, mid-sized businesses do not have the financial cushion to support them during uncertain economic swings, ergo to stay at par with global competition, a transition to a digital business model becomes imperative.

The impact of technology in the business world is no longer a secret. Executives around the globe have accepted the fact that continuous technological investment is a business requirement for survival in the long run. Consequently, leveraging technology to optimize daily AR operations could help businesses thrive in today’s day and age, giving an edge over competitors.

Technology- The Robin to Your Batman

Accounts Receivable is the lifeline of most companies, and AR professionals are no less than superheroes when it comes to improving a company’s cash flow and securing working capital. But every Batman needs a Robin, right? Technology plays the crucial role of a reliable partner that enhances AR team productivity and reduces operating costs to support growing business needs.

Let’s dive deep into each AR process and see how technology could help eliminate potential revenue leaks to boost up a company’s financial health.

1. Credit- The Pillar of Hold For Onboarding New Customers

The loopholes that make businesses miss the bull’s eye!

More credit could mean more business = increased sales. The irony is that it may also carry additional costs including –

  • Extended Credit Cost: Late payments sometimes could cost businesses a huge amount of money and companies could end up struggling with overheads and managing cash flow. To compensate, businesses might increase their borrowings and, in the worst-case scenario, face liquidation.
  • Credit Integration Cost: To assess customer’s credit-worthiness, businesses might have to incur individual subscription costs for different credit agencies to get access to credit reports and financial statements of the customers.
  • Administrative Costs: Granting credit to customers involves additional administrative costs, such as paper costs for manual credit applications, salaries for credit staff, and other office expenses.

Technology- Unknotting the loop!

Technology plays an essential role in minimizing the risk of cash loss and propel revenue growth.

  • AI-enabled Credit Risk Monitoring: Online solutions with visibility into real-time credit data of customers could help with credit risk monitoring to avoid late payments and save on extended credit costs.
  • Credit Decision Accelerator: An automation solution could accelerate credit decisions by automatically gathering credit agency reports, financial statements, payment history, and incorporating all the data to help businesses save on Credit Integration costs.
  • Online Credit Application: Web-based credit applications can potentially save administrative costs such as paper and stationery costs while accelerating the customer onboarding process.

2. Invoicing and Payment- The Oxygen of any Business

The silver slipping out of sight

The process of generating and delivering customer invoices and receiving payment incurs a big chunk of the overall cost of AR. Some of the cost factors include –

  • Cost Per Invoice: Printing, storing and mailing paper-based invoices could cost as much as $2-$5 per invoice and end up hurting the company’s bottom line.
  • Transaction Cost: Receiving payment as checks for invoices involves a significant amount of transaction costs. Moreover, for processing credit cards, Level-III interchange, and convenience cost is an add-on.
  • Compliance Cost: While accepting card payments, companies have to invest in expensive procedures to comply with PCI-DSS compliance to protect cardholder data.
  • FTE Cost: Manual handling of paper-invoices is a time-consuming process, and with an increase in invoice volume, there could be an increase in FTE costs for manually processing the same to avoid payment delays.

Technology- The lost and found for businesses

Automating the invoicing process by leveraging technology could result in over 90% cash savings, along with improving the timeliness of payment and cash flow.

  • E-invoicing: Electronic presentment and payment of invoices could easily cut short a lot of expenses associated with the traditional processing of paper-invoices(print and mail costs). Moreover, e-invoicing can eliminate billing costs by 50% by transforming the manual invoicing process into an automated one.
  • Digital Payments: Transfer from checks to digital payments such as ACH and card payments could reduce transaction costs. Moreover, leveraging level-III interchange fees can minimize card payment acceptance costs.
  • PCI-DSS Compliant Solution: Using PCI-DSS Compliant solution ensures processor tokenization services to eliminate the effort and cost of achieving PCI-DSS compliance for merchants.

3. Cash Application- The Debt Grinder

The ills of the bills

Manual cash application is highly labor-intensive and costly. Some of the hidden costs associated with cash application are as follows:

  • High Lockbox fees: Most businesses heavily depend on expensive lockbox services provided by banks for processing checks. Banks charge for key-in services to capture remittance information along with transmission costs. As a result, companies could end up paying a fortune to banks.
  • Costs of resources for manual cash application: With digital payments, companies receive decoupled payment and remittance information. Manually remittance aggregation and invoice matching is heavily reliant on manual efforts, incurring a large processing cost.

Technology-The antidote!

With the right mix of technologies, the cash application processes could achieve a high level of automation and significant cost savings.

  • Remote Deposit Capture(RDC): RDC can scan large batches of check payments and transmit the image directly to the bank for processing. It could effectively eliminate lockbox key-in fees and, at the same time, cut down on costs associated with manual handling of checks.
  • Optical Character Recognition(OCR): OCR is capable of scanning any document or file to convert images of typed, handwritten, or printed text into machine-encoded text. AI-enabled OCR helps in capturing remittance data automatically from check stubs. OCR not only eliminates the cost of bank key-in but also delivers faster, more accurate processing.
  • Intelligent Invoice Matching: A solution with AI-enabled invoice matching capability could easily match payments with open invoices along with identification of deductions, discounts, and any inconsistencies for individual line items. Automating invoice matching reduces manual intervention and FTE costs.

4. Collections- The Powerhouse Of Every Business

The power parasite

The collection team is responsible for bringing cash in. But, like any other AR process, this too involves hidden costs.

  • Borrowing Cost: Inefficient collection strategies could hurt a company’s cash flow system. In case of a shortage of cash, companies might end up borrowing loans from banks to finance daily operations. This could lead to a loss of revenue due specially with high-interest rates.
  • Administrative Costs: Traditional collection procedures require recordkeeping and collectors need to manually follow up with customers through phone calls, emails, and letters to collect past-due invoices. These manual tasks lead to inefficient resource utilization and have a negative impact on the bottom line. Other associated costs include expenses related to office supplies, forms, and postage.
  • Collection Agency cost: To recover past-due payments, collection agencies charge a fee ranging from 30% to 60% of the collected amount. This leads to a direct revenue loss, hurting a company’s bottom line.

Technology- The reset button

Leveraging technology to automate the collection process can eliminate potential revenue leaks and, at the same time, improve a collector’s productivity by 30%. Let’s look at some examples:

AI-enabled Collections Software: Using an automation solution could provide useful features such as proactive reminders, strategic dunning, easy sending, and tracking of en masse correspondence to collect faster, thus eliminating borrowing costs.

Voice over Internet Protocol(VOIP) Calling: VOIP is a technology that can allow collectors to make voice calls using an internet connection to contact any customers across the globe. A Collection software with in-built VOIP calling allows collectors to talk to customers while sending emails and logging notes, thus avoiding missing out on essential information and saving additional administrative costs.

AI-enabled Digital Assistant: A Collection software with an AI-enabled digital assistant could automatically record calls, capture notes, promise-to-pays, and recommend actions to be taken by collectors for proactive collections. This could help businesses avoid outsourcing external collection agencies and save a huge fortune.

Conclusion

Over the past years, Accounts Receivable Processes have evolved significantly, enabled by new technologies that automate and streamlines manual processes, and generate hard dollar savings. Despite the economic turmoil created by the COVID-19 pandemic, mid-sized businesses are trying to bring up their A-game, but hidden costs associated with AR processes could pose a major challenge. Ergo, identifying such hidden costs and leveraging technology to eliminate them could save a lot of money and, at the same time, help attain efficiency and effectiveness goals.

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The HighRadius RadiusOne A/R Suite is a complete accounts receivables solution designed for mid-sized businesses to put their order-to-cash on auto-pilot with AI-powered solutions. It leverages automation to fast-track key accounts receivable functions including eInvoicing & Collections, Cash Reconciliation, and Credit Risk Management powered by RadiusOne A/R Apps to improve productivity, maximize working capital, and enable faster cash conversion. Affordable, quick to deploy, and functionality-rich: it is pre-loaded with industry-specific best-practices and ready-to-plug with popular ERPs such as NetSuite and Sage Intacct. The HighRadius RadiusOne A/R Suite is designed to automate labor-intensive processes while streamlining credit and collections activities for faster A/R processing, better cash flow and improved profitability.