Time is money. The manual processes behind B2B payments translate into inefficient use of human capital, and a lag in the time it takes to get paid.
Accounts receivable (AR) management, then, becomes art — making calls, sending emails, even sending faxes in pursuit of payment — when it should be a case of automation.
In the latest PYMNTS report on B2B Payments Innovation Readiness: How Automation Can Help Businesses Better Manage Their AR Processes, done in collaboration with American Express, we found the pain points are especially acute when chasing down overdue payments.
From a high level, the firms that rely on manual accounts receivable processes have 30 percent longer average days sales outstanding — and it takes 67 percent longer to get those overdue payments squared away, as compared to companies that have at least some automation in place to address such collection activities. Operating costs (at 50 percent of firms surveyed, generally speaking) and manual processes (at a bit more than 49 percent) were main trouble areas identified with AR-related activities.
Overall, 14.7 percent of B2B receivables are overdue, on average, across the entire landscape and the 460 firms we surveyed.
Drill down a bit, and the problem becomes more acute in certain sectors, worsened of course by the ongoing pandemic. In the construction sector, for example, more than 19 percent of receivables are overdue, on average. That comes against a backdrop where 39 percent of companies in that vertical report having “low or no” technology processes in place tied to AR management. Perhaps no surprise, then, that roughly 57 percent of construction firms report that manual processes are an AR-related “trouble area,” and more than 34 percent stated that inefficiencies were trouble spots. All in all, construction companies have DSOs that are 24 percent above the average firm in our sample.
The urgency for more efficient cash flow management is certainly there even on the other side of the pandemic. As related in a separate PYMNTS report, titled Pandenomics: Main Street’s Six Month Checkpoint, 61 percent of construction firms have said they are not at risk for closing before the pandemic ends. Only 35 percent of firms in this vertical have said they have had to cut costs by reducing payroll to contend with the economic impact of the pandemic.
If there’s been a great pivot in the consumer space toward a “digital first” mentality (and transactions), there’s been a shift too, in B2B, toward at least some digitization of cash flow management. The latest PYMNTS research found that 83 percent of B2B firms, overall, have changed their AR processes since the start of the COVID-19 pandemic. And 63.5 percent of firms are now shifting away from physical invoices and 66.5 percent are receiving more payments digitally.
For firms within the construction sector, faster processes are cited as being among the most prevalent benefits tied to AR innovation, followed by improved team efficiency, and cost savings. And in tandem with technology-centered efforts — including digital invoicing — companies have also been changing payment terms and credit limits.
The runway is clear, too, for improved efficiency across B2B payments. The PYMNTS data found that 70 percent of businesses have plans to embrace technological solutions to improve their AR processes for faster processing and lower costs.