AR Data Analytics and Dynamic Reporting: A CFO’s Perspective

Accounts receivable analytics is a data-driven approach to managing and optimizing the accounts receivable process. It involves collecting, analyzing, and interpreting data related to customer invoices, payments, and outstanding balances.

Accounts receivable analytics is one such solution that can revolutionize the way organizations manage and improve their cash flow. Let’s discuss the ins and outs of data analytics and dynamic reporting.

1.1 Data visibility: A must-have for today’s CFOs

Source: HighRadius

Data visibility is a concern among finance leaders that stems from the widespread adoption of multiple data sources. This brings the problem of constantly monitoring huge amounts of data for insights. Advanced data analytics help unify disparate data into a single data source which speeds up reporting and eliminate manual inaccuracies. CFOs get faster closing times, strong auditability, minimized risks, and accurate decision-making with real-time data visibility.

1.2 What is dynamic reporting?

Dynamic reporting or real-time reporting allows access to updated, interactive reports from anywhere and any device. Dynamic dashboards allow CFOs to generate customized financial reports with multiple KPIs to get critical insights. These reports are updated automatically from ERP data.

1.3 Role of analytics in global growth strategies

Global strategy development demands innovative and deliberative executives to set goals, make smart decisions, and gain an edge over competitors. Let’s take a look at two of the major global growth strategies and understand the role of data analytics:

• Mergers & Acquisitions (M&A)

  The valuation of M&A is based on EBITDA , based on financial data from multiple sources. Analytics plays a significant role in assessing the accuracy of this valuation by providing data visibility; this also helps avoid any confusion in the business.

• Shared Services

  Analytics allows a shared service center to extract data from across the company and utilize it to solve complex problems. It helps financial leaders in analyzing historical data to anticipate future strategies. Analytics also helps businesses highlight potential frauds or regulatory non-compliance and improve operational efficiency.

This chapter will compare traditional and advanced analytics and discuss their impact on a business. Let’s start with understanding accounts receivable data analytics.

2.1 What is accounts receivable data analytics?

Accounts receivable data analytics is the analysis of raw data to determine business specific insights that allow finance leaders to get real-time visibility across different AR processes.

2.2 Traditional methods of reporting and analytics

In 2022, businesses easily recognize red flags in the O2C process within seconds because of interactive analytics and dynamic reporting. But it was not always like this; traditional methods of reporting and analytics before the introduction of SaaS were:

• Paper-based reporting

  The initial accounts receivable reporting was paper-based. Everything starting from data aggregation to calculating metrics had to be done manually.

• Excel-based reporting

  The introduction of excel-based reporting simplified reporting by providing built-in formulas, ready-to-use templates, and various graphs and charts. But the AR team still spent ample time manually keying data into excel sheets.

• On-premise ERP and reporting

  ERP systems such as SAP and Oracle triumphed over the financial world by introducing on-premise software. They provided great insights under a single dashboard and used built-in reporting. However, there were many limitations, such as customization, upgradation, and scalability, making it an inferior solution for global use.

2.3 Inefficiencies linked with traditional methods

Let’s take a look at some factors that make traditional methods of reporting inefficient:

• Lack of visibility across O2C

  The use of paper-based, spreadsheet-driven, and on-premise reporting does not allow CFOs to have proper visibility across O2C processes to monitor financial health.

• Inefficient process because of siloed workflows

  Siloed workflow means teams do not share any information, goals, tools, priorities,
  or strategies. This lack of communication results in expensive errors that disturb the
  business’s overall revenue.

• Time-consuming, error-prone manual reporting

  Traditional reporting means extracting data and doing calculations manually for thousands of invoices which is tedious and exhaustive. Moreover, pulling valuable insights out of this massive chunk of data results in loss of analyst’s productivity.

2.4 Moving forward with advanced analytics

Advanced analytics uses sophisticated techniques such as predictive modeling, machine learning, and process automation to analyze large data sets. It offers a broader set of capabilities to address challenges that traditional methods cannot, allowing more effective strategic decision-making.

Key features:

• Real-time visibility
  CFOs use advanced analytics to gain complete visibility across several AR health metrics such as DSO, ART, CEI, and many more. It allows them to analyze accounts receivable performance and take corrective actions to improve it.
• User-Friendly Dashboards
  Advanced analytics offers user-friendly and interactive dashboards. Dashboards help get businesses specific insights regarding accounts with just a few clicks. These are dynamic and can be accessed anywhere on any device with internet access.
• Simpler Inter-team collaboration
  Inter-team collaboration is essential for a company to increase productivity and grow exponentially. With the help of advanced analytics, teams could share insights with ease and collaborate to discuss future strategies.

Advantages:

• Cut operational expenses
  Operational expenses (OPEX) are compulsory and unavoidable for businesses. But advanced analytics helps reduce OPEX by monitoring inventory, engaging employees, reducing turnover, and delivering insights into resource consumption.
• Reduce bad debts
  Businesses reduce bad debts using methods such as AR aging and percentage of sales. Advanced analytics provide accurate and real-time data required for these methods to work and estimate bad debts.
• Better production management
  Advanced analytics helps improve production management by providing insights on predictive maintenance and dynamic system optimization.

In this fluctuating economy, CFOs need to monitor crucial KPIs to maintain the business’s financial health. This chapter will discuss the key metrics and their impact on business processes.

3.1 Seven metrics CFOs should track in 2022

1. Days Sales Outstanding (DSO)

   DSO is the average number of days a company takes to collect its receivables after a sale. DSO allows finance leaders to assess their business’s financial health and performance. It is directly related to collections, and more than 80% of the companies believe late payments threaten the future of their company.

2. Collection Effectiveness Index (CEI)

   CEI measures a company’s potential to convert invoices to cash. It evaluates the order-to-cash team’s performance and helps decide if the current collection policy needs to be revised.

3. Accounts Receivable Turnover Ratio (ART)

   ART signifies the number of times a business collects its accounts receivables annually. It enables businesses to recognize how fast payments are collected, which helps manage accounts payable and strategies for future investments. It also allows companies to assess their credit and collection policies to support business growth.

4. Operating Expenditure (OPEX)

   OPEX is a business expense incurred through usual business operations such as rent, equipment, and so on. CFOs should track OPEX to reduce operating expenses without compromising integrity and quality of operations. It will help them to gain a competitive advantage and improve cash flow.

5. Bad Debts

   When the repayment of an extended credit sale is estimated as uncollectible and recorded as a write-off, this incurred expense is called bad debt. According to Gartner’s research, bad debts have increased by 26% in the past few years, and there is a need to keep track of it.

6. Working Capital

   Working capital is the difference between current assets and current liabilities. A positive working capital shows a company’s ability to invest and grow in the future. In contrast, a negative working capital indicates the possibility of falling into debt and even bankruptcy.

7. Customer Satisfaction (CSAT)

   Customer satisfaction is a measure of how happy customers are with the company’s products and services. Companies can assess it using the average satisfaction ratings provided by customers. This metric offers CFOs critical data on how to improve their products and services.

All AR processes are distinct and require their own set of reporting and analytics to track valuable insights. This chapter will discuss the reporting and analytics for five crucial AR processes.

4.1 Cash application

Cash application is the process of matching incoming payments from customers with their respective open invoices.
Top three reports:

Additional metrics to track:

• Check capture rate: It measures the system’s accuracy to automatically capture the remittances from check stubs and other paper remittances
• User productivity: It monitors the productivity of the analysts in terms of time spent daily
• Payment volume: It keeps track of the payment volume after exception handling

4.2 Collections

Collections is the process of recovering outstanding payments from customers.
Top three reports:

Additional metrics to track:

• Aging buckets: It categorizes customers based on the past-due duration of AR; collectors rely on aging buckets to prioritize who to call first
• Monthly AR balance: It displays the total receivables at the end of each month and indicates whether the collection practices are improving or degrading
• Open vs. Past due trend: It compares the amount unpaid within the payment deadline with the debt that has crossed the deadline

4.3 Invoicing

Invoicing is the process of issuing invoices, account statements and delivering them to customers.
Top three reports:

Additional metrics to track:

• Customer invoice retrieval volume: It keeps count of the invoices that are retrieved by the customers and displays it as a monthly time series
• Payment volume by payment method: It tracks the total number of payments made by various payment methods over a given period
• Payment value by payment method: It displays the amount of money paid by customers over a specific period using various payment methods such as ACH or credit card

4.4 Credit management

Credit management is the process of assessing credit, granting credit, and setting the limits and terms on which it is granted.
Top three reports:

Additional metrics to track:

• Credit review outcome: It evaluates how much credit limits have changed due to periodic credit reviews
• Customer classification based on risk classes: It distributes the customers based on their credit limits and credit exposure across various risk profiles
• Credit application submission trend: The number of credit applications submitted by the customers per month helps to measure the adoption rate of the online credit application

4.5 Deductions management

Deductions are the amount that customers do not pay in full for specific goods or services for various reasons, and deductions management is the process of resolving such deductions.
Top three reports:

Additional metrics to track:

• Number of days to resolve deduction: It measures an individual analyst’s performance by capturing the average days a deduction owner takes to resolve all the deductions from their worklist
• Open deductions by aging buckets: It effectively summarizes how fast the deductions team has closed the open deductions based on different aging buckets
• Top customers by average resolution time: It displays the top customers based on the average number of days it takes to resolve their deductions; it is essential to monitor this to improve the customer experience

Cash flow challenges are ubiquitous in the B2B world. Adequate cash availability is one of the most significant components in the growth trajectory of any business. Yet, many CFOs do not have control over their cash flow. So in this dynamic economy, CFOs have started relying on cash flow forecasting to emerge as strategic leaders.

Source: FORWARDAI

5.1 Why should every business focus on cash flow forecasting?

Cash flow forecasting is a vital tool that lets you see if and when you’ll run out of money to plan ahead of time. Some of the most significant benefits it offers are listed below:

• Monitor high-risk accounts

  Delinquent customers and bad debts often become the sole reason behind negative cash flow. Cash flow forecasting lets you identify and track customers who are eroding your bottom line so that you can take corrective actions against them.

• Grow more predictably

  Cash flow forecasting enables you to foresee cash surpluses and plan your growth initiatives accordingly. It also helps to anticipate cash shortages that could stifle your business.

• Track your spending

  Cash flow forecasting helps keep track of outgoings in your business and detect issues in financial management. At the end of the month, if the outgoings are higher than the gains, it will impact payments such as wages, taxes, and business operations.

5.2 Role of Artificial Intelligence in cash flow forecasting

Artificial Intelligence (AI) can process, analyze, and detect patterns from vast amounts of historical data to forecast future flows within seconds. Implementing AI in your processes has several advantages over traditional forecasting methods:

• Increase accuracy

  AI helps achieve up to 95% accuracy for long-term and short-term cash flow forecasts. Cash forecasting is all about predicting the future; the more accurate your forecast will be, the better will be your financial planning.

• Reduce time

  AI can make cash forecasting 3,000 times faster. Apart from increasing operational efficiency, you could also reallocate the time to let your team focus on critical tasks.

The key to understanding your business is advanced AR analytics. It paves the way for optimizing your strategies for business growth. Let’s have a look at the benefits it delivers:

6.1 Customer Success Story: Ivanti’s Business Transformation

As we have gained a clear understanding of the value of advanced AR analytics, let’s dive deep into a real-world example and see how it is revolutionizing the mid-market:

About Ivanti

Ivanti is a Utah-based mid-market company that automates IT and security operations.

Challenges

Limited Visibility into AR Processes: Ivanti did not use a centralized repository to track reminders, emails, or notes. All kinds of reports had to be generated manually. They had no real visibility into their business operations, especially regarding payments. It resulted in a lack of ownership among teams. Also, there was no visibility for CFOs to analyze the performance of their business functions.

Solution

Ivanti adopted HighRadius’s solution, which enabled them to implement reporting frameworks at employee and CXO levels. It helped them gain visibility by tracking performance in real-time and provided a fair idea of ownership of accounts. With intuitive dashboards, the company monitored and analyzed essential metrics. The primary benefit Ivanti gained from the dashboards was cash flow forecasting. Ivanti could get accurate predictions of accounts payable based on consumer payment behavior patterns. It also helped them accurately assess high-risk customers and prioritize accounts.

Impact

After implementing advanced AR analytics, they experienced around 20% year-over-year business growth.

6.2 Advanced AR analytics: A step towards becoming the strategic CFO

Source: HighRadius

Data-driven organizations are increasingly taking advantage of automation to understand customers, track processes, and streamline operations. While the world is progressing, adhering to outdated technology could cost your business more than it saves. Outdated systems make it difficult to compete with other businesses in this digital world. The potential of advanced analytics and dynamic reporting is too powerful to ignore, and being the CFO, you should choose the right technology to help your company grow.

RadiusOne AR Suite is a complete accounts receivables solution designed for mid-sized businesses to put their order-to-cash on auto-pilot. It has three AR modules — eInvoicing & Collections, Cash Reconciliation, and Credit Risk Management to improve productivity and enable faster cash conversion. It provides out-of-the-box reporting and advanced AR analytics to help businesses capture actionable insights and enables end-to-end visibility across AR functions. Some of the highlights of AR data analytics in RadiusOne AR Suite:

• Customizable and Dynamic Dashboards
• Advanced Drill-Down Functionality
• Process and Team Performance Tracking
• Automated Report Scheduling and Delivery

Affordable, quick to deploy, and functionality-rich, the solution is pre-loaded with industry-specific best practices to take your business to new heights.