AR is the money or cash that a customer owes an organization for the products or services that were brought by them. Receivables, in general, are considered a liquid asset because most businesses expect to collect their receivables within a short period of time. This act of receiving the cash in a given period of time creates a constant flow of cash which keeps coming in and is then utilized further for business purposes. Thus, the AR process creates the machinery necessary to keep a business afloat.
But AR functions till date mostly work on legacy systems, even though the process is cumbersome and inefficient. The core reasons why organizations have stuck to such legacy systems include high dependency on manually intensive AR processes and human advisors, doubts about the cost-effectiveness of digitizing the AR processes and the time required to implement the company-wide changes. Thus, traditionally, organizations have been averse to spending large amounts on digital transformation of the AR function.
But the current unpredictability of covid-19 pandemic and continued usage of legacy technologies has brought accounts receivables to the forefront and companies want to optimize the management and recovery of their existing capital. Companies are more inclined to invest in modern accounts receivable automation software to facilitate improved collections and overcome the rigidity of the legacy solutions.
Digitization of AR processes will have a direct and positive impact on the cash flow of the organization. Businesses now possess the option to automate any and all routine AR tasks in the cloud by digitizing their accounts receivable processes including invoicing, reminders, payment processing, collections and dispute management, and invoice matching and reconciliation. All of these will contribute to bringing in payments faster and more efficiently through better communication and coordination.
Improvements in AR performance directly leads to faster payments and a steady cash flow. If a company’s accounts receivable is in order, they would be able to book the expected profits, focus on increasing their business by investing in other places and enhance shareholder value.
The 5 key functions within AR that help generate cash when streamlined include:
AR encompasses all the processes that take place between the creation of an invoice for goods or services sold, and the collection of the funds from that invoice. This makes it logical for the CFOs and leaders to keep a pulse check on the receivables since it helps them account for any billing and collections across the organization.
Along with all the benefits that AR focus will generate, organizations will also enhance the customer experience when they streamline their invoicing, collections and deductions processes. This also reduces churn rates and increases repeat purchases. The continued benefits of AR as a function along with the resulting great customer experience continues to remain a top priority for the CFOs and the financial leaders. This helps increase the lifetime value for both – the customer and the business.
Companies that ignore the AR aspect face difficulties while billing and collections, and risk going out of business, if the AR process is not streamlined in a time-bound manner.
A subpar AR system will affect the cash due to a company and cover up flaws in the company’s business processes.
Some of the most common problems arising due to negligence of AR include:
Highradius conducted a research to find the common AR pitfalls across organizations and industries, which has thrown light on some critical focus areas.
The frequently encountered problems as found from the research include:
We know that there’s no ‘one-size-fits-all’ policy when it comes to dealing with customers. But the practices and policies below have brought about significant changes in how companies approach AR and how it helps them reorganize their business processes and improve cash flow.
The above best practices and policies give you a bird’s eye view of how technology has even further revolutionized AR. All the key functions within AR can now be automated and this leads to limited human intervention, reduction of errors, and simplified business processes.
Over the last few years, companies have had to embrace technology and automation to support operations and maintain the best customer experience. Even though these trends existed before 2020, the last year saw unprecedented acceleration and it is likely to continue.
Business owners now understand the benefits of automating processes with advanced IT infrastructure. Technologies like artificial intelligence (AI), machine learning (ML), and robotic process automation (RPA) have now become a part of business strategies.
If this transformation continues RPA will achieve near-universal adoption within the next five years.
Automation is not just limited to RPA but also includes APIs along with RPA, customized code, AI or ML, or off-the-shelf software. RPA typically automates routine processes. Applying AI to RPA will orchestrate human-like intelligence to the bot-driven processes, aiding quicker business decisions.
A pure RPA automation can automate rule-based repetitive tasks, like sending out reminders or correspondence letters to customers based on pre-defined templates. It can also assist in creating collection notes and tracking payment commitments.
Artificial Intelligence helps in finding patterns from historical data to identify the most relevant information required to make informed decisions. When AI is employed in the accounts receivable process, it predicts data like blocked orders or when customers are likely to make payments. This inference then can be used to alert the collectors to take proactive measures.
The combination of RPA, integrated workflows, and AI/ML creates a holistic and formidable automation process for AR. It helps in decision-making on matters such as delinquent account prioritization and setting customers’ credit limits. At the same time, it allows finance teams to focus on root cause analysis to speed up AR processes.
Organizations are increasingly digitizing their AR functions now and strengthening their cash flow. Furthermore, with automation in full swing, it is not a far-fetched idea that the majority of the companies would eventually shift to hyperautomation with maximum straight-through processing (mechanism that automates the end-to-end processing of transactions of the financial instruments), helping employees in finance department to focus on more crucial aspects of the business and not on the mundane manual and repetitive tasks.
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.