New Research Shows 15% of B2B Receivables Are Overdue

Manual processes, such as paper invoicing, invoice matching and reconciliation, have long defined how B2B businesses manage their accounts receivable (AR).

This continued reliance on manual AR management practices is one of three challenges commonly reported by AR teams, together with the resulting lack of speed and high operating costs associated with managing receivables. These problems often tend to amalgamate and result in delayed payments.

In fact, 15% of B2B receivables are overdue, according to the B2B Payments Innovation Readiness report, a PYMNTS and American Express collaboration.

Also see: B2B Payments Innovation Readiness

The situation is particularly troubling for larger firms that generate more than $500 million in annual revenue, as 16.0% of their B2B receivables are overdue, compared to 14.3% for mid-sized firms generating between $50 million and $500 million and 13.8% for small firms that generate less than $50 million in annual revenue.

Manual Processes Have Far-Reaching Effects

Reliance on manual processes has far-reaching effects. These methods often reduce the speeds at which firms deliver invoices and follow up on overdue payments, as they are less efficient for prioritizing collections.

Their use also increases the likelihood of errors, which then must be manually identified and fixed. These cumbersome processes often result in increased operational costs. Challenges arising from reliance on manual AR processes often extend to processes that are critical to cash application and credit checks.

Firms that have longer-than-average days sales outstanding (DSOs) tend to have problems that stem from their lack of promptness or inability to follow up on overdue payments as well as longer payment terms. That is because manual processes impact how firms prioritize collections and send payment reminders, leading to delays in follow-up on overdue payments.

Automation Helps Firms Improve Their Collection Cycles

The challenges posed by the reliance on manual processes have accelerated businesses’ interest in automating their AR processes. The degree of automation used in managing AR strongly relates to firms’ ability to shorten their collection cycles. As a result, customer credit checks and payment collections are functions in which automation is most likely to be implemented.

One key reason that embracing automation helps firms achieve shorter DSOs is that it takes the hassle out of manually following up on overdue payments, which is a time-intensive process. Automation also streamlines the tracking of collection activities, leading to shorter collection cycles.

Failing to follow up on overdue payments in a timely fashion contributes to the problem of overdue receivables. Firms that wait an average of 45 days to follow up on overdue payments have 26% of their receivables overdue. Firms that follow up within five days of payments becoming overdue report a delinquency rate of just 8.8% — 40% below the average sample.

B2B firms that understand how these potential benefits of automation can affect their AR management are planning on further digitizing their operations in the near future. They see that embracing AR automation can not only help firms improve their collection cycles, but can also help them speed up their processes, reduce costs, improve team efficiencies and improve customer experiences.