50% of Firms Identify High Operating Costs as an AR-Related Trouble Area

Paper-based payment processes are slow and costly, and their use to collect receivables makes existing payment pain points even worse. The good news, however, is that most 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) systems for faster processing, more efficiency and lower costs.

Those would address the three challenges firms identify as the most problematic when it comes to managing AR. Those pain points are high operating costs (cited by 50% of businesses), manual processes (49%) and process speed (48%), according to the B2B Payments Innovation Readiness Playbook, a PYMNTS and American Express collaboration that analyzes the survey responses of 2,203 small to large businesses representing a variety of sectors.

Get the report: B2B Payments Innovation Readiness Playbook

Manual processes reduce the speed at which firms deliver invoices and follow up on overdue payments, reducing efficiency when prioritizing collections. They also increase the likelihood of errors, which then must be manually identified and fixed. These unwieldy processes raise operational costs and generate unnecessary errors. Manual AR processes are still in common practice, however, so it is not surprising that firms across the board identify AR as their main trouble area.

Shifting to New Technological Solutions 

The demand for better solutions to B2B transactions was highlighted by the announcement Monday (Jan. 10) that Berlin-based payments processor startup Denario had raised 1.3 million euros ($1.5 million) in a financing round. The company offers automated software that allows businesses to do their financial processing without using traditional banking or financial administration tools.

Read more: German Payments Startup Denario Raises $1.5M to Automate B2B Payments for SMBs

PYMNTS’ research found that the shift to new technological solutions to upgrade their AR systems is particularly apparent among businesses in the technology, healthcare and construction sectors. A higher share of firms in these sectors — especially those that have been slow to automate their AR processes — are implementing new technologies and adopting AR automation. Interest in upgrading AR processes is particularly high for invoice delivery and payment acceptance capabilities.

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.

Benefitting From Automating Processes 

Firms that utilize a high degree of automation for managing AR processes naturally enjoy shorter days sales outstanding (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.

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. Businesses that are seeking to reduce their DSO will benefit from automating processes such as tracking collections activities and following up on late payments.