In Payments Automation, Don’t Forget Accounts Receivable

In B2B payments, accounts payable automation is a hot topic, as are the challenges AP professionals face when it comes to paying suppliers and managing the data from those transactions.

But a new report from Corcentric, written by the Institute of Finance & Management (IOFM), details the hurdles on the other side of the payment. Accounts receivable processes, like their AP counterparts, are similarly plagued by manual, paper processes, making the cash management effort monumental for suppliers.

The problem is amplified, the report noted, when suppliers — often SMEs — are part of a Group Purchasing Organization (GPO) that must deal with multiple entities at once. GPOs are groups of corporations that leverage their size and power in numbers to obtain discounts from suppliers and require that these vendors operate across a multitude of networks, systems, standards and processes, the report said.

In a manual world, managing the order-to-cash process across these business processes can be a mess.

Corcentric and IOFM pointed to an array of challenges that result from manual order-to-cash operations, including longer payment collection cycles, mistakes in the price quoting process, errors in order entry, and an incomplete or inaccurate view of overall cash positions.

A survey by the IOFM said the majority of companies still rely on manual processes to manage the order-to-cash process, however; accounts receivable inefficiencies were cited as AR professionals’ biggest frustration in an IOFM survey.

“The root of these inefficiencies is that businesses rely on paper for most of their orders and invoicing, and they receive customer remittance data in inconvenient formats, such as paper, email or fax, that must be rekeyed for reconciliation,” IOFM explained.

Nearly half of the companies surveyed by the institution said they still use spreadsheets for AR reconciliation.

But as Corcentric and IOFM revealed, the accounts receivable department may not have total control over its ability to get automated.

“The stubbornly high volume of paper checks received by businesses is another contributor to O2C inefficiencies,” the report said, citing data from the Remittance Coalition that found nearly half of companies in a separate survey reported being paid by other companies “mainly as checks.” More than 86 percent of AR professionals told IOFM that they would prefer to receive more electronic payments from their corporate clients.

And while 80 percent of these businesses said they demand payment on credit sales within 30 days, days sales outstanding is averaging at 50 days, according to CEB TowerGroup. SMEs are hit even harder by long payment terms that clock in at an average of 72 days, the Asset Based Finance Association found.

But accounts receivable operations that stick to paper invoices and legacy spreadsheet technology make clear that they play a part in their own friction, stemming right at the beginning of the sales cycle as suppliers and vendors send out paper invoices and reconcile orders via manual, legacy tools.

Corcentric and IOFM identified closed-loop B2B sales networks as a potential remedy for some of the friction suppliers face when they are unable to aggregate and analyze sales and financial data. A closed-loop network not only facilitates buyers’ purchasing processes but enables sellers to retain data and automate key business functions.

A closed-loop system supports an electronic data interchange to exchange invoices, automates three-way matching to reconcile data from a purchase order, advanced shipping notice and the invoice and provides a working capital management solution.

It can automate credit checks for buyers and streamline the invoice and payment dispute process, the report said. Collectively, a closed-loop network saves money and enhances efficiencies.

Sometimes, a supplier needs help to manage cash flow when corporate buyers are sticking to checks and when they lack the resources to automate business processes. That aid, argued Corcentric and IOFM, can come in the form of a closed-loop network that provides credit and collections management services, electronic payments and remittance tools, dispute management and risk mitigation and automated, digital processes in the order-to-cash cycle.