The commonly overlooked opportunity to unlock growth: Accounts receivable.
For organizations with ambitious growth goals, the accounts receivable process often flies under the radar. Yet, as sales increase, inefficiencies in AR can create challenges that hold the business back.
Mallory Idleman, vice president and treasury management officer for Commerce Bank, frequently sees this scenario in her work with businesses of all sizes. In many cases, the solution is to leverage technology to streamline the processes related to receiving payments.
“As companies look to scale their business,” Idleman said, “they need to maximize the results of their teams and give them the tools to handle that growth.”
Technology designed to automate the AR process can help them scale without adding personnel or overburdening their teams.
When should you revisit your AR process?
There are several signs that a business’ accounts receivable process isn’t as efficient as it could be. A common indicator is the gap that arises when a key employee goes on vacation or retires, according to Joe French, vice president with Commerce Bank and team lead for the Solutions Consulting Unit.
Today, software can document information in a way that enables the team to operate with consistency and efficiency.
“You’re adding the ability to institutionalize the knowledge that your team has into their business processes,” French said. “So, when a person leaves the company, that knowledge is not lost; it is in the software.”
Another sign it’s time to make changes is when it takes too long to receive payment following a sale. “Businesses are going to have different averages for days sales outstanding, or DSO,” Idleman said, “but if it’s anywhere near the high side, you want to look at the processes involved in applying those payments.”
Inefficiencies in AR don’t just delay payments, they create a domino effect across the entire order-to-cash cycle. For example, a slow customer onboarding process delays the first order, the first invoice and ultimately, the first payment. Manual processes, such as pulling remittances from email inboxes and matching payments to accounts, further exacerbate delays.
“Those things take time,” French said. “The longer it takes, the longer until the invoices get paid.”
For smaller organizations, these delays can be particularly painful. Larger companies often dictate payment terms, and Commerce Bank is seeing more organizations require vendors to manage their own invoices by uploading them into AR portals before they can be approved for payment. Sometimes, the companies even charge suppliers for access to the portal.
How to develop a more efficient AR process.
The first step in streamlining AR is to document each step the business currently uses, starting with accepting an order, all the way through to collecting and reconciling payment. Idleman recommends making note of any manual tasks along the way, such as paper-based workflows, emailed documents and spreadsheets used for tracking.
“It looks different for every business, but I would say 99.9% of the time, there are manual processes that can be automated,” she said.
With a process map in hand, business leaders can begin evaluating software and other solutions to simplify this work. “At this stage, companies will need to consider several variables,” French said, “including the types of payments they accept, regulatory requirements of their industry, number of clients they have and whether they’re working directly with consumers or primarily handling business-to-business sales.
There is help available. French recommends businesses reach out to their financial institution early in the process for guidance. At Commerce Bank, for example, companies can work directly with the bank’s professionals on implementing AR automation.
“We are partners in the success of your organization,” he said. “We want to understand how our customers operate their order-to-cash process, and we can lay out plans and strategies to get some easy wins when it comes to automation.”
Ready for growth.
Optimizing AR isn’t just about getting paid faster. It’s a factor in empowering business growth. With the right systems and automation in place, a finance team will find it has more transparent and current data to guide strategy and more bandwidth to tackle growth initiatives.
The key, according to French, is to get started. “Automation breeds more automation,” he said. “A lot of customers start small. Automation is not a point in time; it’s a journey.”
