Even senior finance leaders sometimes overlook Accounts Receivable as a necessary but somewhat mundane function, or see it as unpleasant due to its potential for human conflict. Anyone who has spent time collecting accounts will relate to that. Fortunately, this all could be changing as strategic and imaginative technology is applied to key pressure points within the process.
The reputation for dullness of Accounts Receivable, or A/R, stems from its transactional, repetitive and mechanical get-cash-in-the-door aspects. Its reputation for unpleasantness comes from having to make the challenging emails or phone calls to chase a delayed payment or prod a customer gone silent.
According to feedback from a recent sample of CFOs1, A/R was either out-of-sight and out-of-mind or ignored intentionally due to these unpleasant aspects of collections.
However, in a time of uncertain operating environments when cash and cash flow are once again king, A/R is enjoying a re-appraisal for the role it plays in the organisation. Macroeconomic conditions are meeting trends within the industry that have seen the emergence of a new way of thinking about A/R. This new approach is effectively an evolution that is seeing A/R, long a laggard in the adoption of consumer user experience norms, begin to integrate and profit from a shift in perception, methodology and technological empowerment.
For finance leaders where A/R is part of the organisational mix, an awareness of this shift is critical and embracing the transition could bring enormous benefit to your team and the bottom line.
A/R has existed in some form since the ancient world. The practice of factoring dates back to at least 1772 BCE when it was referenced in The Code of Hammurabi. Arguably, it hasn’t changed too much since then. In fact, this resistance to change has been no more apparent than in the past three decades as technology has transformed human experience in a range of areas, yet barely made a dent in A/R.
In many ways the fact that A/R has remained a technological backwater in this period is a mystery. After all, A/R sits at the nexus of so many relationships. As one veteran credit manager recently observed in a forum we conducted: the lifeblood of the organisation runs through A/R. This lifeblood isn’t just money, it’s why customers pay or don’t pay. The opinions that drive customer payment behaviour often reflect their opinion of your organisation, and are the most explicit indicators of the health of their own businesses and industries. Ultimately, A/R is where you’ll first hear of the financial difficulties customers may be facing, and by extension, an uncertain operating environment.
What is becoming clear is that there is no reason why A/R isn’t used as one of the key touchstones in understanding the relationship with an organisation’s customers, the markets it operates in, and the entire continuum of the sales lifecycle.
Far from being mechanical, when a back office team is equipped with both empathy and insight, A/R can be a “safe space” where a customer will express their concern for their relationship with the organisation. This point of vulnerability is an invaluable “sweet spot”, and golden opportunity to build connection and customer loyalty.
While the shift in A/R is multi-faceted and constantly evolving, let’s focus on two key aspects: the ascendancy of human relationship engagement and the harnessing of rich data that flows through the A/R function.
First, we’ll look at the role A/R can serve in building and improving ongoing customer relationships. Without technology to organise and support communications, A/R practitioners are understandably caught in a continuous game of catchup, facing long lists of calls to make, emails to send and accounts requiring follow-up. A/R has been, first and foremost, a grinding “box ticking” exercise with little room for strategic thinking or pro-active engagement.
Unlocking the human relationship in A/R depends, perhaps counter-intuitively, on the application of smart technology. This technology, at its best, frees up the A/R practitioner from mechanical processes by automating as much of the “box ticking” work as possible.
Some examples of these processes and features include:
• Change in credit score alerting A/R team to follow up
• Automated sending of invoices or statements with links to pay
• Notice when purchase orders are running out
• Notice if orders may be going on hold due to unpaid invoices
• Automated notice when credit limit requires review
• Automated reminder to update payment methods on file due to expire
• Ability for customers to self-serve for copies of invoices / statements
• Ability for customers to lodge a dispute on an invoice
• Automated escalation process on disputes
• Automated payment allocation
Any CFO who wants to immediately improve A/R, even without an investment in technology, can use the list above as a checklist to do an audit of their current A/R function to determine the weakest spots and gauge its overall functioning. They should be able to use specific results to even improve current functioning even if it means simply raising awareness of places the process might be falling down (e.g., Are customers finding it hard to lodge a dispute? What is the escalation process in disputes? Could it be smoother? What impediments stand in the way of customer-centric A/R?)
By introducing automation into the equation, some of the more mundane or repetitive aspects of A/R can be delegated to machines, allowing the A/R team to focus on those critical emails or phone calls which create strong bonds with clients. These communications are the challenging ones which require an unhurried human touch—the ones which must be made after a missed payment or during financially turbulent times (like now). While no technology can alleviate the awkwardness and challenge of a tricky phone call, a shift in perspective can transform difficult interactions into productive, and even profitable, encounters. As we’ve learned more from the front-line of A/R, it has become crystal clear that without lightening the burden of the repetitive tasks, there can be no space carved out to really think about how best to engage and manage customers in a way that can create a hand-in-glove relationship with them that drives loyalty, better outcomes and even increased upselling.
The simple act of better understanding the client’s current situation and the reasons for a delay in payment can help forge a relationship built on mutual trust and understanding that will transform the customer into a lifelong partner. The automation of engagement can take many forms, most involving a migration of customers onto a 24/7 interactive portal and push notifications and other forms of digital communications that do the heavy lifting, freeing up A/R personnel to do the more meaningful tasks. In highly competitive markets, A/R that is seen by customers as supportive and even pro-active (for example anticipating needs and reducing friction) can be a critical loyalty builder.
The second area is A/R’s potential to provide a rich trove of actionable data and even the space to put that data to work. A/R contains fundamental data about your business and your clients. By leveraging this data, you can determine whether your expectations of an account’s performance align with reality, and hone in on the most profitable areas where the organisation should focus its energies.
Smart technology brings together multiple inputs including: A/R statistics, sales, customer sentiment, disputes, credit, risk, staff inputs as well as customer behaviour and forecasts, which alongside other organisational information, give CFOs business intelligence insights like never before. Smart technology can provide forecasts of Days Sales Outstanding and even expected payment dates. Automated A/R can deliver visibility beyond what a standard ERP is able to offer and with a much greater degree of customisation and flexibility. For example, by tracking accounts on autopay and specific amounts of invoices due on given days of the month, CFOs can more accurately forecast cash collections on this percentage of their portfolio. Reports that highlight potential problem payers can be generated automatically. Automated A/R functionality not native to ERPs becomes available through smart technology.
In particular, technology is now being refined to incorporate a new age credit-scoring function into A/R. This is key to integrating A/R into sales and giving sales teams critical insights into their customers. By collecting the data your company is generating with every invoice, every engagement, by monitoring specific actions taken by clients and keeping an eye out for external risk events, it is possible to intelligently score accounts and predict how a customer will behave far better than you could with an old-fashioned credit score.
This is just a snapshot of how A/R data can be used. The important takeaway is that in an environment where cash is key, finance leaders have more reasons than ever to embrace their A/R team. Those who want to come out ahead will harness the digital transformation happening in this industry for their own good. Ultimately, the future is likely to see Accounts Receivable turned into a financial seismograph with the ability to transform a historical cost centre into an organisational profit centre.
While technological transformation of A/R should be the ultimate direction, the CFO can ready the ground for this transformation and reap immediate benefits today by using the points outlined above to conduct an A/R audit. But they can go even further. In our implementations and audits of A/R functions across a wide-range of organisations, it has become clear that one single thing can immediately improve the A/R function and also support eventual technological evolution like nothing else: data cleansing.
Every CFO serious about improving their A/R function should take a long, hard look at the master data that lays behind their A/R. Are fields complete? Are records consolidate? Are there double-ups in invoices? I can’t tell you the number of times an organisation has excitedly expressed how much they want to “unlock their data” only for all of us to realise they were months away from cultivating the data into something truly usable.
1 SurePayd CFO Learning Sessions Sydney, 2020
