Firms That Rely on Manual Processes Take 67% More Time to Follow Up on Overdue Payments

Paper-based payment processes are slow and costly, and using them to collect receivables makes existing payment pain points even worse. These cumbersome, manual processes impair the speed and efficiency of invoicing, performing customer credit checks, and collecting and matching receivables — all resulting in longer days sales outstanding (DSO).

For example, firms that rely on manual processes take 67% more time to follow up on overdue payments, according to the B2B Payments Innovation Readiness Playbook, a PYMNTS and American Express collaboration.

In addition, businesses that rely on manual accounts receivable (AR) processes have 30% longer average DSO than firms that rely on medium or high levels of automated processes for collecting receivables. This significantly impacts their abilities to maintain their cash flows and keep their businesses up and running.

A Move Away From Manual Processes

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 AR systems for faster processing, more efficiency and lower costs.

PYMNTS research confirms that firms turning to automation technologies to help with AR functions such as cash application, payment acceptance, collections, customer credit checks and reconciliation are finding themselves in a better position to more easily adapt to changing market dynamics.

Firms that utilize a high degree of automation for managing AR processes naturally 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 longer than the DSO for firms with moderately to highly automated AR processes.

The Benefits of Automating Processes

Businesses that are seeking to reduce their DSO will benefit from automating processes such as tracking collections activities and following up on late payments. New technologies can help firms execute these crucial AR functions in an agile and effortless manner.

To begin automating their processes in order to navigate cash flow challenges, finance leaders should eliminate manual processes, shift away from physical invoices, adopt automation for flexible credit conditions, use DSO as a way to gauge automation, and prioritize their digital transformation.

Automation does not have to be all-or-nothing in moving away from manual processes; businesses can prioritize how they address their biggest payment pain points so they can kick off their digital journeys at their own pace.

During that journey, a great indicator of a highly automated AR process is a short DSO cycle. The benefits of that achievement will be tangible, because firms that are successful in reducing their DSO stand to improve their cash flow and long-term success.