Study: Manual AR Processes Slow Payments Collection By As Much As 67 Percent

Paper-based payment processes are slow and costly, and tend to exacerbate existing payment pain points when collecting receivables. This is the key takeaway from a study of 2,203 small to large businesses representing a variety of sectors. The good news, however, is that two-thirds of firms are cognizant of these issues and are actively moving away from manual processes, planning instead to embrace new technological solutions to upgrade their accounts receivable (AR) processes for more efficiency, speed and lower fees.

This shift is particularly apparent among businesses in technology, healthcare and construction industries. A higher share of firms in these areas are implementing new technologies and adopting AR automation. Interest in upgrading AR processes is particularly high for invoice delivery and payment acceptance capabilities — two key functions that have been particularly impacted by the pandemic.

To learn more about automation uptake, the B2B Payments Innovation Readiness Playbook: Adapting To Cash Flow Challenges Posed By The Pandemic, a PYMNTS and American Express collaboration, analyzes the survey responses to understand how manual processes impact AR for businesses across a variety of sectors, including the advertising, technology, construction, energy and healthcare industries. The report further explores how automation can help firms improve their collection cycles and reduce the average days sales outstanding (DSO).

Our research revealed that operating costs, manual processes and process speed are the top three AR challenges. We also found that firms that rely on manual processes take 67 percent more time to follow up on overdue payments than those that use automated AR processes.

Firms from different industries are impacted by manual AR processes to varying degrees, however. Manually running customer credit checks is a pain point for 38.9 percent of firms in the construction sector, yet 28.2 percent of healthcare firms and 26.3 percent of construction firms see manually handling invoices as a challenge. We also found that 44.4 percent of firms in advertising see manual errors as the main problem faced by their AR department.

Firms that utilize a high degree of automation for managing AR processes enjoy shorter DSO as they do not have to struggle with the challenges associated with manually managing AR processes. The DSO of a firm with no or low levels of technological implementation for managing AR is 52 days, which is 12 days greater than the DSO for firms with moderately to highly automated AR processes. Firms that have longer-than-average DSO often struggle because of their inability to follow up quickly on overdue payments and their longer payment terms.

These are only some of the findings from our research. To learn how new technologies can help firms prepare for the ever-changing payments land­scape, download the report.