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AP/AR Automation Takes On Paper Tiger For The Future Of Treasury

Something’s going to happen with paper checks, paper invoicing — the whole paper thing on a grand scale — and businesses need to be ready for that eventuality. It’s one definition of “resilience,” of which much is needed during this time of upheavals and unknowns.

For the new B2B Payments Innovation Readiness Playbook: Adapting to Cash Flow Challenges Posed by the Pandemic, a PYMNTS and American Express collaboration, researchers surveyed over 2,200 treasury executives from small to large businesses across several verticals.

“PYMNTS’ research confirms that firms turning to automation technologies to help with AR functions such as cash application, payment acceptance, collections, customer credit checks and reconciliation during the pandemic are finding themselves in a better position to more easily adapt to changing market dynamics,” per the new Playbook.

Manual AP/AR departments need help – badly. The Playbook adds that, of COVID’s commercial casualties, “…perhaps no firms have been as severely impacted as those reliant on manual processes. Case in point: Firms that rely on manual processes take 67 percent more time to follow up on overdue payments than those that use automated AR processes. Businesses that rely on manual AR processes also have 30 percent longer average DSO than firms that rely on medium or high levels of automated processes for collecting receivables.”

The Most Problematic Areas

Accounting functions are having a funky year, as COVID caught many corporates either right before or in the middle of big digital transformation projects. As it pertains to digital readiness, however, it seems the message is getting through, helping firms pinpoint where to focus.

“The three challenges firms identify as the most problematic when it comes to managing AR are high operating costs (50.1 percent), manual processes (49.2 percent) and process speed (48.4 percent),” according to the December B2B Payments Innovation Readiness Playbook. “This makes sense because manual processes reduce the speed at which firms deliver invoices and follow up on overdue payments, reducing efficiency when prioritizing collections. Manual processes also increase the likelihood of errors, which then must be manually identified and fixed. These unwieldy processes raise operational costs and generate unnecessary errors. Manual AR processes are still in common practice, however, so it is not surprising that firms across the board identify AR as their main trouble area.”

As the Playbook notes, manual invoice average days sales outstanding (DSO) is increasing from 39.7 days to 42.6 days. “This outcome has significantly impacted companies’ abilities to maintain their cash flows and keep their businesses up and running,” per the Playbook.

There are silver linings to be had, however. “The crisis has made firms aware of the negative effects of manual AR processes,” the Playbook states. “Seventy percent of firms are looking to automate their AR functions. Approximately two-thirds of firms are moving away from manual processes and are planning to use technology solutions to upgrade their AR systems for faster processing (67.7 percent), higher efficiency (63.6 percent) and lower costs (60.2 percent).”

Performance Gap Widens

Manual processing of invoices and payment is labor-intensive. In fact, it’s too laborious.

“AR departments dedicate 24.5 percent of their staff to supporting invoicing and 23.2 percent to managing payments,” per the Playbook, “as compared to tasks like cash applications and credit checks, which the bulk of firms identify as the most challenging, but less labor-intensive, as firms dedicate just 15 percent and 18 percent of workers to them, respectively.”

It’s the shape of things to come – not eventually, but immediately. It’s digitize, or else.

The new B2B Payments Innovation Readiness Playbook study finds that “63.5 percent of firms are now shifting away from physical invoices, and 66.5 percent are receiving more payments digitally in their efforts to automate AR processes. Firms that have implemented more technology for automating AR seem to be better at managing cash flow as well.”

“Our research shows that 81 percent of firms with high technological implementation are delivering more invoices digitally, and 83.1 percent are receiving more electronic payments now than they did before the pandemic began. These numbers are only 22.2 percent and 20 percent, respectively, for firms with no technology implementation, demonstrating the tremendous gap in performance between the two types of firms,” per the new Playbook.

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