AR Automation Revolution Improves Key Metrics, Including Invoice DSO

Digital Payment

There’s no escaping financial automation, and who would want to? If you surveyed hundreds of treasury executives, as PYMNTS did, across the accounts receivable (AR), billing, cash application, credit, collections and treasury management functions — and in as many verticals — you would quickly find that automation is the treasurer’s golden ticket. They’re actively seeking it from tech partners.

PYMNTS’ February 2021 B2B Payments Innovation Readiness Playbook: The Business Case for Automating AR Processes, an American Express collaboration, gives context to the findings, explaining that “the pandemic is amplifying [manual AR] problems as firms struggle to reconcile their invoices and minimize their own cash flow crunches. Investments in automation can alleviate many of these issues, however.”

PYMNTS research finds that 87 percent of firms that have automated AR functions are processing faster, while 79 percent say automation enables them to improve team efficiency, and 75 percent say it’s useful in providing “superior customer experiences.”

Sounds like a ringing endorsement of payments innovation investments, which are now being made by more banks and financial institutions (FIs) as they grasp the freedom of automation.

Vertical Verisimilitudes

A key performance indicator for the effectiveness (or not) of AR automation is a shift in days sales outstanding (DSO) — which, when improved, tracks back to a more reliable cash flow.

“Energy and advertising firms have benefited especially well when using automation [to manage DSO], with 88 percent of the former and 87 percent of the latter experiencing shorter DSO cycles,” according to the February B2B Payments Innovation Readiness Playbook.

By the same token, the costs of failing to use AR automation are steadily climbing. “Firms in industries that are likelier to have implemented few or no technologies are much less likely to list DSO improvement as a benefit of automation. Just 52 percent and 38 percent of construction and healthcare businesses, respectively, cite DSO improvement as an advantage realized from implementing AR automation,” per the new Playbook.

Within certain verticals, not acting — or not acting swiftly enough — is leading to unsustainable patterns. “The pandemic has made the automation stakes even higher for firms. Those that have implemented few or no technologies have faced significant DSO increases, and this trend is especially evident in the construction and healthcare sectors,” per the new Playbook. It notes that construction companies using “few or no automation technologies have experienced average DSO increases of 20 percent from before the pandemic’s onset, while healthcare companies reported an average increase of 17 percent. This suggests that automation implementation can have a significant positive effect on firms’ cash flow management operations, especially as virtual work is likely to remain a reality for some companies after the pandemic has passed.”

The Many Blessings Of Automated Invoice Management

Digital shifting in the AR function often begins with invoice management, as it often yields the quick wins that pump up corporates about the transformative effects of AR automation.

Per the February B2B Payments Innovation Readiness Playbook, “businesses handling more than 20,000 invoices per month that use automated invoice delivery tools have DSO averages up to 23 days shorter than those that rely on manual, paper-based processes. Even firms with smaller invoice volumes benefit from automation, enjoying DSO marks that are as much as 15 days shorter than those that have invested in few or no technologies.”

If that’s not convincing enough, the Playbook also found businesses that deliver “between 500 and 1,000 invoices per month have an average DSO of 32 days. Firms within this segment that have little or no automation have an average DSO of 44 days, while the average DSO is just 29 days for those with high levels of automation.”

Incremental and otherwise, these are the kinds of changes possible for firms that have adopted a posture of readiness and a mindset of resilience in response to current conditions.