Delinquencies and DSO Dive When AR Payment Processes Are Automated

Manual accounts receivable (AR) processes lead to inefficient payment acceptance and credit assessment, which ultimately results in a slower collection process. 

Conversely, among firms that use automation in the areas of payment acceptance, the credit check process and collection management get paid much faster. 

In fact, about two-thirds of firms that have automated AR processes report that they have benefited from improved days sales outstanding (DSO), and about half say they have achieved lower delinquency rates, according to “B2B Payments Innovation Readiness,” a PYMNTS and American Express collaboration based on a survey of 460 small to large businesses. 

Get the report: B2B Payments Innovation Readiness 

Approaching AR Automation with a Checklist 

In fact, a lot of data seems to suggest that digital transactions were already on a pathway to going digital prior to the pandemic — COVID-19 was just an acceleration of what was already an ongoing transition, Luke Gebb, senior VP of Amex Digital Labs, told PYMNTS. 

Read more: Amex: Merchants See Consumer Demand for Digital Payments as Catalyst for Innovation 

As finance leaders approach AR automation to improve their firms’ collection processes, there are three things they should include on their checklist: 

• Assess AR pain points. Businesses must gauge which key receivables pain points are affecting their collections cycles, allowing for a modular solution approach. This is especially critical for firms in sectors that have lower levels of automation overall and thus must identify which strategic investments can best address their cash flow strains. 
• Reduce DSO. Minimizing DSO cycles can help businesses get paid sooner and improve their overall cash flows. This requires firms to embrace technological solutions to facilitate payment acceptance and optimize their collections process. 
• Prioritize automation. Firms that rely on manual processes struggle with high costs and challenges, but automation can help address these issues. The data demonstrates a clear gap between the firms in sectors that have largely embraced automation versus those that have not. 

Firms that rely on automation can cut down the time it takes to follow up on overdue payments, speeding up collections in the process. Additionally, automated credit checks can shorten payment terms and reduce the length of their payment cycles. 

Remaining Competitive in Today’s Digital-First Business Environment 

PYMNTS’ research underscores how crucial it is for businesses to tap automated AR processes to avoid overlong payment terms and more swiftly follow up on overdue payments. Firms would also benefit from using technology to track customers’ credit histories and automate payment acceptance, allowing them to spend less time manually verifying information and receive payments faster. 

This means that remaining competitive in today’s digital-first business environment requires businesses to leave their legacy AR management processes behind and kick their automation plans into overdrive.