To Make Cash More ‘Usable,’ Accounts Receivable Processes Must Be Automated

Across business operations, automation can mean the difference between efficiency and stagnation.

Timothy Batsche, director, B2B client management at American Express, told PYMNTS that accounts receivable (AR) automation, in particular, can help companies navigate supply chain issues and improve cash flow.

Batsche noted that AR is an especially timely consideration in an environment where back-office operations are far-flung, such as with a work-from-home environment, a trend that could prove to be a permanent shift even after the pandemic. In the meantime, he said, the approval processes for invoice inflows and outflows look different: “They’re disconnected.”

As Batsche told PYMNTS, suppliers are seeing a surge in payments that have been digitized — yet they have no way to capture or process them. The virtual card emails of these suppliers are still often being manually printed out and handled by back-office staffers who spend hundreds of hours a month grappling with data reconciliation.

Drilling down a bit, Batsche noted that the mechanics of collections are such that invoicing — getting payments through the proverbial door, and the reconciliation of payments — can be a process that’s rife with challenges.

“Just because cash is collected doesn’t mean it can be deployed within an organization as working capital,” he said. That payment has to move from a reconciled cash ledger account into a more deployable account before the cash can be used.

There are pressures that impede the cash cycle, said Batsche, who pointed to frictions that come with exceptions and with the general approvals process. Miscommunications and disputes between buyers and suppliers can also hinder the eventual postings to cash accounts.

Batsche offered up a scenario where a supplier offers a 2% discount if invoices are paid within 30 days. The goods purchased by the buyer may be a mix of specialized and standard goods. The standard goods might carry lower margins than the specialized ones — the discounts may be offered on the higher-margin items, as there’s some flexibility to take the lower pricing. But a dispute might arise as to which part of the invoice received that discount, he said.

Holding Up the Cash 

“So this winds up holding up that cash conversion cycle, because that cash, or the payment from that check or whatever sort of virtual payment was received, sits as unreconciled cash and cannot be deployed throughout the organization,” explained Batsche.

For firms developing a framework that adopts and adapts to digitization and automation, treasury executives and CFOs must have at least two or three matching capabilities across the purchase order. It’s also critical to have the ability to process invoices straight through. These functions help create the automation that drives the insights to the data and reporting platform. If this work is not automated, it’s hard to position a firm for success and improved AP/AR reporting that eliminates or reduces manual tasks.

“If you’re doing things manually and not digitally or electronically, it’s very hard to pull insights around your current process,” Batsche said.

But with end-to-end automation, modernized and digitized AR systems can capture the required data by pushing that information to the right users — and reaching decisions related to approvals or exceptions to streamline the payment’s transition into deployable cash.

The opportunity to automate is a greenfield one, to put it mildly. As Batsche noted, only 24% of invoices are applied in real time and can be deployed in the form of working capital, and only 50% are linked to a purchase order. Only 24% of invoices are processed straight through with no errors.

“To enhance your relationships with your buyers or suppliers, [the process] really needs to be positioned for data and intelligence,” he told PYMNTS. The urgency is there, as 88% of finance professionals view automation as critical to driving projects and improving the performance of the organization.

“You have to automate your AR/AP in order to get those data insights that help drive dynamic discounting, payment, routing and controlling payment flows — delivering that overall optimal buyer-supplier experience,” Batsche said.