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Optimising cash & collections in the new COVID-19 normal

Efficient and effective accounts receivable operations are now more vital than ever as COVID-19 continues to create havoc worldwide and will continue to affect our lives for many years, if not forever. A new SSON Report Automating Accounts Receivable - Optimising Cash & Collections in Uncertain Times (sponsored by High Radius) showed the critical role of accounts receivable with research showing that the most significant impact and problems caused by COVID-19 has been, according to a survey of finance executives, a decline in collections (30%). (Problems with supply chain disruptions was only 22%.). 

Consequences of poor AR management

The report lists the dire consequences of poor AR management:

  • Missed customer payments both by the customer and by the AR processes not revealing missed payments
  • Unsent invoices: An accounting system allows invoices to be automated, but the process needs to be audited regularly to ensure these are sent out on time, based

on your agreements/contracts.

They conclude that “a stringent and reliable methodology is key” to overcome the

 five factors that derail efficient AR practices:

  1. Late payment  - see figure below from SSON’s Metric Intelligence Hub 2109 results
    1. Adhering to agreed payment terms is critical manage. Companies need to manage the law of diminishing returns, e.g. invoices that extend beyond 120 days overdue which are significantly less likely to be paid
  2. Poor productivity and efficiency gaps:
    1. Manual and non-streamlined processes which result in collectors often spending too much time looking for customer information in databases, updating spreadsheets, correcting data errors, and other non-value adding activities
    2. Instead, companies should be focusing on communicating with customers, settling disputes, and performing activities that expedite payment.
  3. Errors in invoice information and delivery:
    1. Missing documents, e.g., customer’s purchase order
    2. Wrong data, incorrect address, invoices going astray/getting lost in the mail, etc. 
    3. Overlooking or ignoring payment terms leading to extra work 
  4. Low focus on high-risk accounts:
    1. Focus on the customers that always pay late. Such customers need to be critically reviewed to determine whether chronic defaulters. 
  5. Bad data:
    1. Most businesses do not have a formalised credit and collections process and are still working with outdated Excel spreadsheets, old Aging Reports, or information is manually entered into CRM systems.
    2. Inaccurate and outdated information.

The SSON’s Metric Intelligence Hub 2109 results also showed that all companies delivered the payment outstanding details to the AR department within three days, so the problem is with these five factors.

The solution: Shared Services Centres for AR

The report argues that “The benefits of Shared Services are that there is one way of doing things, with [costly] exceptions quickly and easily identified. The model allows valuable resources to be deployed in other areas of the process – today that often translates to data analytics, or specific problem solving, i.e., providing additional value to the business by re-imagining the AR process.” 

The report argues that the key is centralised AR automation which:

  • Reduces processing costs and human error
  • Speeds up incoming payments
  • Saves time
  • Improves customer service
  • Provides better risk assessment and mitigation.

But to achieve maximum returns from a centralised AR centre company need to add artificial intelligence platforms such as highradius’s Rivana, an artificial intelligence platform for ‘Embedded Decision Making’ across credit, collections, cash allocation, deductions, billing and payments as part of their integrated receivable platform which is made up of a range of receivables Apps. (This functionality is also integrated into BofA Merrill accounts receivable service.)

highradius processes over £380 billion worth of receivables annually for many well-known companies worldwide. They deliver:

  • increased A/R team’s efficiency and productivity
  • faster on-boarding of new customers
  • aggregate claim documents 92% faster from emails, EDIs and web portals
  • processing of deductions at NO additional cost.

Case Study

Case study: Mondelez International adopted BofA accounts receivable package using HighRadius because “it could be scaled globally and one that was flexible enough to cover their configuration requirements. They found that the HighRadius solution offers an integrated receivables platform that allows them to have best-in-class receivables solutions across the board.”

Raluca Staicu, Global Bill to Cash Lead, MONDELEZ INTERNATIONAL said, “As a result of using one solution to manage cash application and deductions, reporting and visibility on performance have been considerably enhanced. What’s more, we’ve had 80%+ cash application automation across markets where implementation took place and a wealth of new opportunities to streamline the process and achieve standardisation through the journey.”

CTMfile take: Centralised Shared Service Centre operations for A/R plus AI-supported APIs are clearly the way to go. 

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