Time for CFOs to Break the AP/AR Automation Bottleneck 

Today’s CFOs find themselves more and more in the driver’s seat. 

But that doesn’t mean the road ahead is a clear one. 

Coming out of a choppy past couple years into what is hopefully a soft economic landing, today’s finance leaders are facing difficult choices when it comes to optimizing their companies’ investments. 

That’s because the story of 2023 into 2024 is one of efficiency but also innovation — where finance leaders need to prepare their organizations for the emergent era of generative artificial intelligence (AI) and other digital advances, while at the same time cutting costs and leaning into workflow flywheel effects. 

Within this operating context, the right digital investments can drive long-term value, but only if they are truly investments. 

However, identifying the best bang for the buck is becoming increasingly challenging as the pace of technological change remains faster than ever while the cost of capital continues to be anything but cheap for firms that have been battling the inflationary pressures and rising interest rates of the past economic cycle. 

These competing dynamics make it difficult to accurately estimate the return on investment (ROI) of new tech investments. 

But discerning the signal in the noise is actually quite easy. 

At a time when the finance department is more important than ever, and working capital especially critical to survival, savvy CFOs should invest in themselves. And one of the most effective ways to do so is by modernizing the accounts receivable (AR) and accounts payable (AP) programs. 

After all, bogging down the accounting department with mismatched paper- and manual-based processes that haven’t evolved since the dawn of the internet is no way for firms to operate more than two decades into the 21st century. 

Read more: 90% of CFOs Want Automation to Fix Payments Errors and Delays

To Invest in AP/AR Processes, Firms Need to Remember They Exist

The way that organizations get paid now can define and frame their growth in the future, yet few organizations outside of larger enterprise players have made the enhancements needed to automate and digitize their AP and AR processes.

That’s because while payment speed, which affects cash flow and working capital, is a major priority for finance leaders, AR departments themselves are not always prioritized. 

PYMNTS data shows that only 17% of firms with revenues between $250 million and $750 million are reaping the benefits of having automated their money-in and money-out processes.

Those benefits include increased transparency around working capital, data-rich insights to drive decisioning, and the agility to adjust in real-time to economic challenges while exploiting opportunities.

Savvy CFOs know that by optimizing the ways they are getting paid and the methods of payment they can realize a better picture of the overall end-to-end movement of their organization’s cash conversion cycles.

But for finance teams increasingly tasked with pulling the right levers to capture sustainable success as treasury responsibilities evolve alongside business strategies, outdated processes can hamstring future growth opportunities while bottlenecking flows of cash. 

Digital Drives a New Era of Financial Decisioning Processes

Modernizing finance workflows with digital and automated solutions provides CFOs with a valuable intelligence layer over the inner workings of their organization’s money-in and money-out cadence, as well as real-time visibility over working capital realities. 

And while historically the finance team has been the stepchild of internal investments, there has never been a better time than now to take manual processes out of the picture. 

PYMNTS’ latest study of 100 CFOs, “Accounts Receivable Automation Smooths Order-to-Cash Continuum,” a collaboration with Corcentric, found that most firms over $250 million used no automation in AR in the last six months, and no firms of that size had fully automated AR operations.

This is despite the fact that payment-related disruption is the biggest source of friction across the entire order to cash continuum, and 9 in 10 CFOs say they need more automation.

The report found that firms with higher automation in AR reduced days sales outstanding (DSO) by 26% more than firms with less automation.

“There’s a larger change that’s taking place in terms of converting less efficient forms of payment to digital forms, and we see that trend continuing,” Todd Manning, head of commercial strategy, M&A and alliances at American Express, told PYMNTS.

Echoing that sentiment, Fredrick “Fritz” Smith, CRO at Corcentric, told PYMNTS, “The world is changing very fast relative to the way in which digital payment strategies can be incorporated and their ROI realized.”

“The next evolution is companies realizing that they don’t have to do this themselves with their own resources. … Digitization is table stakes now. People need to stop looking at their order-to-cash or AR processes as a necessary evil to suffer through,” explained Corcentric CEO Matt Clark to PYMNTS in an earlier discussion.

PYMNTS research shows that more than 9 in 10 companies (94%) are investing in digital technologies in at least one area of payments and finance, with a similar percentage (87%) planning to invest in the future.

Ultimately, upgrading any process needs to deliver real business results to be worthwhile, and the effectiveness of a company’s order-to-cash capabilities should be apparent in its impact on their DSO performance, exception rates and overall labor efficiencies.