93% of Companies Experience Late Payments

Accounts receivable (AR) teams face notable challenges, especially if their companies continue to rely largely on manual processes. One of the biggest pain points is delayed payments, with 93% of companies experiencing late payments from customers, according to the “Working Capital Playbook,” a PYMNTS and YayPay collaboration.

Get the report: Working Capital Playbook

The Playbook also reported that YayPay found that the average payment period lasts 34 days, despite expected terms of 27 days. In addition, the average organization writes off 1.5% of its receivables.

Organizations’ financial plans rely on money being in the right place at the right time, and any deviations can have massive ripple effects as delayed payments beget more delayed payments. This, in turn, strains vendor relations.

Needing Money in the Right Place at the Right Time 

Many delays occur due to a lack of AR digitization, with 40% of firms still leveraging paper checks and postal mail to make B2B payments. This results in not only having to match payments to open invoices manually but also vulnerability to delays in the mail, reconciliation errors and countless other avenues for delays.

The good news is that a growing number of automation and predictive-analytics solutions can help AR departments solve these problems.

One of the best ways to improve AR teams’ timeliness and efficiency is to eliminate as much human error as possible via automation. PYMNTS’ research found that 87% of companies that leverage AR automation have reported decreased processing times, while 79% said their teams’ efficiency had improved and 75% reported superior customer experiences. Beyond that, 72% saved operational costs, 62% achieved days sales outstanding (DSO) improvement and 60% reported head count reduction.

Leveraging Predictive Analytics 

The most advanced AR automation systems leverage AI and machine learning (ML) technology to analyze AR data and outline potential trends. These predictive analytics systems can help AR staff dynamically predict which clients and vendors will be most inclined to have late payments, past-due invoices or other risks, allowing staff to devote more time and energy to them. YayPay’s predictive analytics system, for example, was found to improve productivity among AR teams by a factor of three, lowering days sales outstanding (DSO) cycles and freeing up funds tied up in AR.

One business that has invested heavily in smooth AR processes is Advertise Purple, a Santa Monica, California-based advertising agency that works with a broad assortment of clients ranging from individual bloggers to Fortune 500 companies.

Maintaining an open channel of communication with customers is the name of the game when it comes to smooth AR processes, Advertise Purple Chief Financial Officer Jonathan Moisan told PYMNTS last summer.

“We do an extensive credit check, ask for references, do all of our due diligence on that,” Moisan said. “Our AR team is consistently asking for updates, but we’re obviously lenient and understand, especially during times of pandemic like the last year and a half, that challenges arise.”

Automation and predictive analytics can help AR teams put a significant dent in delayed payments, missing invoices and other expensive and time-consuming obstacles.