At a time when rapid digitization is the order of the day, many businesses are still relying on manual accounts receivable (AR) processes that decelerate collections and cash flow.
Verticals including construction and healthcare are still wrestling with such issues in Q1 2021, as those sectors entered the pandemic more reliant on manual methods. It’s led to a situation where “healthcare firms take an average of 25.3 days to follow up on late payments, while construction firms take an average of 22 days to do so. Those values are 43 percent and 24 percent above the average for all firms, respectively.”
That’s one major finding from the March 2021 B2B Payments Innovation Readiness Playbook: The Impact of Automated AR Processes on Collection Cycles, a PYMNTS and American Express collaboration. Analyzing survey responses from 460 businesses of different sizes, the report shines a light on how manual AR remains the bane of accountants, from advertising to tech firms.
“Firms that have failed to integrate technology for payments acceptance have terms that are almost 18 percent longer than firms that have automated in this area,” the new Playbook states. “The average payment term for firms that have not automated this process is 28 days, but the corresponding figure is just 23 days for those that have.”
“These findings illuminate a simple but powerful truth,” per the new Playbook. “Automated acceptance means firms get paid faster.”
Automating AR And Credit Checks Is Shortening DSO
Companies that shrewdly survived the pandemic are now fine-tuning operational weak spots revealed by the COVID chaos. Receivables continue playing catch-up with the digital shift, however, as the new research finds a growing divide between automated and manual AR. Some are drilling down specifically on the credit check process as ripe for rejuvenation.
Per the new Playbook, “Those that automate [credit checks] offer 13 percent shorter payment terms than those that use manual methods,” adding that businesses relying on manual tools to perform credit checks “are often ensnared in a cycle of delayed payments, which lengthens their days sales outstanding (DSO) and hinders their ability to maintain steady cash flows.”
On the flip side, companies integrating AR automation for collections take 16 days to follow up versus 19 days for manual operations, proving that “investing in automated tools is beneficial for firms in the long run, as it can shorten their overall payment cycles and allow them to get a better handle on their cash flows.”
Looking at various market verticals, some are ahead of others with regard to smoother AR flows. Time and again, it’s coming down to who automated specific processes.
For example, B2B Payments Innovation Readiness Playbook research found that “48 percent of construction and 56 percent of healthcare firms use technology to deal with collections, compared with 71 percent and 68 percent of firms in the energy and advertising industries, respectively.” In construction, that moves to 52 percent of firms, and 44 percent in the healthcare sector are continuing with manual methods, leading to “inefficiencies that result in longer DSO cycles. Healthcare firms take 25 days to follow up on average, and construction firms take 22 days, 43 percent and 24 percent above average, respectively.”
Learning From Sectors That Automated AR Early
Not that it’s difficult anymore to make a case for investing in AR automation. Huge swaths of industries are doing exactly that –and in earnest, because payoffs are becoming undeniable.
According to the March edition of the B2B Payments Innovation Readiness Playbook, “sectors that are further along in adopting technology … enjoy smoother collections environments,” adding that “technology firms take 19 days to follow up on collections, whereas energy firms take 12 days and advertising businesses take only 11 days. This means that energy and advertising DSO processes are 36 percent and 37 percent shorter, respectively.”
Moreover, PYMNTS researchers found that 62 percent of firms that automate AR processes reported improved DSO, with 49 percent achieving lower delinquency rates. “This is especially true for firms in the energy and advertising sectors that have invested in automation, as 88 percent and 87 percent of these businesses, respectively, recognize these as key benefits of AR automation. Another advantage of AR automation is lower delinquency rates, per the Playbook.
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