The accounts receivable (AR) function is vital in any organisation, ultimately driving or hindering both cash flow and profitability, says Shaun Dicker, head of Operations at Intervate.
A bad debtor’s book has a direct impact on cash flow and profitability and the cost of financing it is considerable. In addition, AR can have an impact on the customer experience, either positive or negative, which can influence their decision to stay with a business or move to the competition.
Customers today require transparency and ease of communication via multiple channels with regard to the AR function, whether they are consumers or other businesses, and optimising this process is essential. However, AR is faced with a number of challenges in this regard, often as a result of incomplete documentation or poor document delivery. Accelerating the AR process requires intelligent technology to guarantee all required documentation is delivered on time to ensure prompt payment, enhanced cash flow and a better customer experience.
AR is often faced with the challenge of cash flow under pressure as a result of the need to collect bad debt. If funds receivable are outstanding by 90, 120 or 150 days, it simply results in ‘no cash in the bank’ and also impacts a company’s ability to pay their creditors. This increases costs, as more resources need to be thrown at the problem. It also silently erodes margins and revenue through overdraft fees rather than accumulating interest on a positive bank balance.
Typically, this challenge comes as a result of numerous issues regarding documentation. Lost documentation, missing invoices, missing proof of delivery and multiple paper-based processes can result in delays with regard to payment. Statements and invoices that are late in reaching the customer may miss monthly cut offs, meaning that payments will only be processed the following month. Invoices that are sent separately to statements can cause additional headaches, as customers then need to manually link these, which takes time and effort. In addition, customers may withhold payment as a result of documentation that has not been received, or documentation that may have been received but cannot be easily located.
This impacts the not on the AR department, but the accounting function as a whole, as well as employees who need to interact with customers and the customers themselves. Without having all of the required documentation available and easily located, customers will have difficulty in dealing with the company, finding the right person to speak to and resolving issues. This has a significantly negative impact on the customer service, and could lead to increased customer churn along with all of the other issues bad debt creates.
The reality is that creditors clerks will first pay suppliers whose documentation is complete and error-free, as well as suppliers who are able to provide the right information on time, the first time, and every time. Ensuring documentation is all in order, easily accessible and automatically sent to customers can go a long way towards optimising the AR function. Automating this process and linking all required documentation together in an intuitive fashion using intelligent technology solutions is key in improving this function.
Intelligent technology helps to accelerate the AR function by integrating with all relevant document generation processes, including invoices and statements, and then dynamically linking all related and relevant documentation for ease of integration. Such solutions guarantee electronic delivery of these documents effectively, efficiently and in a SARS-compliant manner, on time and with confirmed delivery receipt. Recipients can click through to dynamic links on the document, for example invoice numbers on a statement or purchase order numbers on an invoice, to drill down into further details.
Technology also provides the mechanism to execute all functions, such as payments, right from the document itself, adding further convenience and ease of use. Not only does this automate the relationships between documents for convenience and expedited payment, it also creates a portal for customers, suppliers and staff to interact directly with a company and with one another.
Having a solution that automates document delivery and provides links to invoices within the statement and the option to communicate at the click of a mouse from this statement can improve collections significantly, assist to resolve queries speedily and greatly improve the customer experience as well as cash flow. This in turn can assist with dramatically reducing overdue debt, which improves cash flow, reduces bad debt provision and the cost of capital, and improves the balance sheet. In addition, it improves customer interaction and provides a better self-service experience, enables customers to retrieve information quickly and easily, and works across platforms and back end systems for multi-device integration capability.
Carrying bad debt is a risk of any business, however companies that make it easy for their customers to pay them will inevitably experience higher rates of payment. By giving customers the ability to find what they need, with all of the relevant documentation and the ability to facilitate payments easily from the same documentation, organisations can put themselves ahead of other creditors in the queue for payments. This in turn helps to improve the customer experience, which offers further benefits beyond the immediate improvements in the payments and documentation process.