The Easiest Way for Suppliers to Lose Business Is With Manual AR

It’s said that change is the only constant in business, but that doesn’t mean firms need to consistently adapt to every new trend.

This is particularly true within the B2B space, where to achieve growth while safeguarding financial stability, organizations must navigate the complex landscape of accounts receivable (AR) deftly and with care.

“As always, B2B suppliers should be aware of where we are in the economic cycle and how that could impact the risk associated with their AR program,” Shawn Cunningham, managing vice president and head of Capital One Trade Credit at Capital One, told PYMNTS.

“Many B2B organizations across industries struggle with delayed payments and disruptions to steady cash flow,” Cunningham added. “No one can know for sure where this goes next, but suppliers need to stay on top of their AR and its trends to avoid outsize risks to their business.”

At a high level, macro trends such as ongoing digital transformation are reshaping the B2B landscape. The increasing shift toward online purchasing presents both opportunities and challenges.

While eCommerce and digital marketplaces open the door to new customers, they also introduce new risks. Suppliers frequently lack prior relationships with these new clients, and new customers acquired through online channels may pose a higher risk if they are not adequately vetted or if their creditworthiness is not thoroughly assessed.

“The opportunity to grow is significant, but so is the risk to a supplier’s business if not managed well,” Cunningham said.

Consistency in Modern AR Management

Despite the shifting landscape, some elements and best practices around supplier AR programs remain constant and have gained importance.

“What has stayed the same or become even more important is that suppliers have a modern and effective approach to managing credit and managing their AR program, including how they extend terms to their customers,” Cunningham said.

A well-defined process for evaluating credit risks is crucial, particularly for new customers, he said. This process should include sophisticated credit models capable of assessing the risks of fraud and nonpayment accurately.

“Suppliers should have effective tools and defined processes across all steps of the AR lifecycle,” Cunningham noted.

“From a credit assessment perspective, evaluating a new customer should not be the last time a supplier looks at a customer’s creditworthiness,” he added. “In today’s fast-moving and changing world, a customer’s financial stability and ability to pay can change significantly over time.”

Therefore, suppliers should regularly update their credit assessments for all customers to identify any potential credit risks and make informed decisions about reducing or eliminating credit exposure.

In addition to assessing credit on the front end, suppliers also need to have effective tools and practices to ensure they collect their money on the back end.

“This includes early-stage payment reminders using both email and outbound calls, credit holds when an account reaches midstage delinquency, and, eventually, defined assertive recovery methods for late-stage delinquencies,” Cunningham said.

Creating a Best-in-Class Customer Experience

A best-in-class customer experience across the AR process arises from leveraging technology and automation throughout the AR lifecycle.

This entails things like online credit application processes, real-time approvals and immediate purchasing capabilities for customers.

“Suppliers also need to make sure they are delivering the customer billing via the channel that the customer desires, whether that’s online, over email or, even if they want, through the mail,” he said. “And it needs to come with the information that the customer requires to unlock timely repayment, whether that’s a PO [purchase order] number or the SKU level data.”

Online service that is available 24/7 is essential, allowing customers to access invoices, manage preferences and make payments conveniently. Suppliers should offer a variety of payment options and employ automation to streamline payment processing.

“Suppliers should look to implement these tech-driven capabilities to ensure a seamless end-to-end experience,” Cunningham said. “In general, business customers are no longer accepting of the clunky manual processes long associated with B2B accounts receivables.”

Business customers now expect the same seamless technology-driven experience in B2B transactions as they do in consumer credit processes.

The Way Forward: Embracing Technology

While the future remains uncertain, several innovations may drive the success of tomorrow’s AR programs.

So, what does Capital One’s Cunningham see happening just around the corner?

He cited prescreening as an exciting near-term advancement, which would enable suppliers to evaluate potential customers for an AR account and tailor their offers to the right customers before they even apply, reducing risk and increasing sales.

“Another trend, which is only growing in importance, is the use of new and additional real-time data sources in performing credit evaluations,” he said. “It is no longer enough to just check a credit bureau when evaluating a new customer’s credit. New third-party data sources — with an example being a real-time integration with an applicant’s banking history — enable suppliers to both reduce risk and identify opportunities to increase sales by extending additional credit or longer terms.”

To effectively manage the risk of AR programs, while providing an exceptional customer experience, one option for suppliers is AR automation software.

Another option is full-service AR solutions like those Capital One Trade Credit provides. Suppliers get the benefits of protection from the risk of nonpayment or fraud and improved cash flow through advanced funding. Also, these customized AR programs provide their own customers with a technology-driven experience while also removing or reducing the supplier’s burden of running their in-house program, he said.