Categories: B2B Payments

Looking Beyond Digitization To Optimize AR

As enterprise digitization initiatives permeate beyond IT departments and into corporate finance functions, executives are exploring new approaches to modernizing the ways they manage money.

Within finance and accounting departments, digitization is quickly expanding from encouraging a shift toward electronic documents and adoption of enterprise apps to wielding technology in an effort to optimize operations beyond number-crunching. Accounts receivable (AR) is also increasingly joining this conversation.

According to Katie Stein, chief strategy officer of professional services firm Genpact, organizations are beginning to understand the potential value of digital, automated accounts receivable. With its close ties to payments and cash management, the AR function can drive revenue growth and cost savings.

However, as Stein recently told PYMNTS, businesses should embrace an expanded vision of what it means to digitize accounts receivable, with significant ramifications for strategic corporate customer relationships.

The Three As

As Stein explained, the “early journey of digitization and task-level automation began with work elimination,” but CFOs and other finance executives are finding opportunities to enable corporate finance to “unlock business outcomes.”

She pointed to the Three As — automation, analytics and artificial intelligence — as important tools in this effort. In accounts receivable, with its close ties to cash, revenue management and company margins, these technologies can enable a business to not only optimize AR processes, but fuel smarter business decisions, she said.

As digitization progresses, she also pointed to the benefits of a deeper data integration between AR and other areas of the enterprise.

“The strategic objectives of increasing liquidity, plugging revenue leakage and optimizing working capital [are] supported by the transformation that credit, collections and the accounts receivable department has seen in recent years,” she said, adding that this optimization process has traditionally occurred in a siloed, “piecemeal manner.”

“Now,” she continued, “an integrated approach serves departmental key performance indicators, and resonates with the finance leadership’s vision for digital transformation across processes.”

Customer Relationship

Expanding the vision of digitization’s potential also introduces another opportunity for accounts receivable, which Stein described as one of the most important strategic functions for AR. Pointing to Genpact research that surveyed more than 500 CFOs and corporate finance executives, she said, “customer experience is the number-one corporate priority, ahead of increasing cash flow and driving revenue growth.”

That’s not only a focus reserved for corporates’ B2C relationships, though.

“When asked about businesses’ expectations from the finance function in the next two years, enhancing the experience for customers, suppliers and employees also comes out on top,” she said.

The AR function can be a bridge between a corporate and its business customers, with significant opportunity for digitization and optimization to enhance the buyer-supplier relationship. Stein pointed to processes like electronic invoice presentment, data integrations between AR platforms and corporate customers’ own portals, and self-service functionality. These can all drive corporate buyer satisfaction, while connecting businesses to real-time data that can further enhance the financial goals of AR digitization initiatives, like sales and revenue growth.

Furthermore, accounts receivable is more frequently viewed as part of the overall payer experience, which can support corporates’ shift toward making and accepting electronic B2B payments. Yet, like any meaningful disruption in the enterprise, achieving AR optimization — in areas like financial management and beyond — comes with its barriers.

Pushing Boundaries

“The AR function is, today, a value-driver, [rather] than a cost center,” said Stein, “and, in every sense, directly contributes to overall enterprise strategic objectives. Yet, challenges remain to meet these goals.”

She pointed again to Genpact’s survey, which found that while organizations are increasingly viewing financial functions as drivers of overall company objectives, “not a single survey respondent states that their function can do so significantly.” Furthermore, only 1 percent of respondents said they are significantly improving customer experiences.

Stein highlighted several ways that corporates are struggling to digitize and optimize their AR operations to achieve these more strategic goals for their organizations. Businesses’ complex infrastructure landscapes are a particularly tall hurdle, with many larger organizations operating with multiple ERPs, dozens of platforms and bespoke portals that can add friction to their efforts to seamlessly integrate automated AR technologies.

Changing mentalities is another massive challenge: Many organizations continue to assume that digital transformation is an expensive, time-consuming process — an assumption Stein called a “myth.” Furthermore, in accounts receivable specifically, many firms view the process in a silo, rather than understanding where AR sits within a broader string of operations, including its ties to sales, supply chain management and other financial areas of the enterprise. As such, she said, some professionals can undervalue the opportunity to digitize AR.

However, one of the biggest pitfalls stifling organizations from realizing these opportunities is in their approach to the process. Businesses must understand their individual needs, embrace flexibility, and combine domain and integrated solutions to tackle their biggest areas of inefficiencies for both their firms and customers — which won’t be the same for everyone involved.

“Approaching AR digitization as a pure tech solution is a … recipe for disaster,” she warned.

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The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

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