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Improving Cash Flow and the Bottom Line with AP and AR Automation – Part 2

By Erin McCart posted 02-25-2015 09:22

  

Core business infrastructure components, including everything from production lines to customer service, are all being automated to improve efficiency, increase margins and positively impact the bottom line. So, why then, are payment systems – one of the most critical parts of an organization’s infrastructure – still lagging behind?

In part one of this two-part series on payment system automation, we noted that half of businesses still use error-prone manual processes for accounts payable (AP) and accounts receivable (AR). But, when best practices are put in place for automating these processes, the benefits are real and tangible. In fact, a third of businesses report cost savings of 50 percent or more from adopting automated AP and AR solutions as opposed to previous manual procedures.

Here we’ll take a closer look at the AR side and how businesses can realize substantial time, resource and cost savings through automated solutions.

Accounts Receivable – Payment Disputes and Exceptions, Money Left on the Table

Every year, millions of dollars are written off, thousands of hours are misused and countless customer reputations are put at risk from businesses’ AR departments performing time-consuming manual tasks such as phoning, e-mailing, faxing, mailing and filing to collect the documentation necessary to resolve payment disputes and exceptions.

These kinds of slow and inefficient payment collection processes can leave a lot of money unaccounted for, which puts significant stress on businesses’ cash flows. In fact, businesses average 34.5 days for outstanding sales, with nearly a quarter averaging 40+ days.

Furthermore, one in five businesses lose 3 percent or more of total receivables due to short payments, late payments, out-of-time discount claims, tax disputes, contract disputes, unrecoverable debts and other exceptions. Yet, it’s surprising that many still suffer through manual processes and poor access to related case-documents.

How AR Automation Can Help

Switching to an automated AR software solution that can manage customer payment exception processes shows similar benefits. In fact, 41 percent of organizations that implemented an automated AR software solution reported a payback time of 9 months or less, growing to 82 percent for 18 months or less. Beyond this substantial ROI though, the three biggest benefits businesses saw from implementing an automated AR solution were achieving better records for audit trails and litigation (43 percent), reduced time spent per collection (42 percent) and sharper cash flow predictions (25 percent).

On top of these automation benefits, AR processes can be improved even further when combined with a solution that can aggregate and integrate relevant content no matter where it resides, what type it’s saved as or how big it is; identify errors early on, before processing; and work with other kinds of workflow solutions. This can only be achieved with a fit-for-purpose content management system, which helps businesses significantly improve their process management through better visibility into workloads, payment progress and cash flow predication.

$8M Richer with AR Automation

To offer a real-world scenario, a global leader for personal and health care products had a significant problem with AR performance. It suffered from high write-offs due to undetected short payments, non-payments and payments outside of agreed upon terms; and its manual gathering of information needed to manage these payment exceptions resulted in tens of millions of dollars in goodwill and bad debt write-offs every year.

The company implemented a content management system with an AR solution that could automatically detect short payments from report data and initiate appropriate actions, as well as allow it to access all related documentation for accounting processes in a centralized way. And, as a result, the company reduced the time required to process vendor invoices by more than 50 percent, gained an estimated savings of close to $8 million per year and improved cash flow of about $22 million.

Running on Time and on Payment

Automation software can reduce the time, cost and errors associated with both manual AP and AR processes. In fact, automating AP and AR could save organizations 50 percent or more on invoice processing alone! With such best practices, businesses can stay running as they should – on time and on payment. 

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