Manual accounts receivable (AR) processes create several significant pain points for businesses. The pandemic is amplifying these problems as firms struggle to reconcile their invoices and minimize their own cash flow crunches. One effect has been significant increases in days sales outstanding (DSO).
Investments in automation can alleviate many of these issues, however. In fact, 62% of firms realize DSO improvement from AR automation, according to B2B Payments Innovation Readiness Playbook, a PYMNTS and American Express collaboration that analyzes the survey responses of 460 small to large businesses.
Get the report: B2B Payments Innovation Readiness Playbook: The Business Case For Automating AR Processes
DSO improvement is a key benefit that AR automation imparts as implementing these technologies allows firms to better manage their cash flows by accelerating the time between the delivery of goods or services and payment receipt.
Focusing on Reducing DSO
Notable differences exist in the extent to which businesses from different sectors benefit from AR automation, however. Energy and advertising firms have benefited especially well when using automation in this area, with 88% of the former and 87% of the latter experiencing shorter DSO cycles. Firms in industries that are likelier to have implemented few or no technologies are much less likely to list DSO improvement as a benefit of automation. Just 52% of construction businesses and 38% of healthcare businesses cite DSO improvement as an advantage realized from implementing AR automation.
AR teams are highly focused on reducing DSO, and PYMNTS research shows that investments in automation technology are a key factor in helping them improve their DSO cycles. The average DSO among firms that have automated the payment acceptance process is 40 days, for example, while the average DSO of those that have automated their invoice delivery processes is 41 days. Firms that have not invested in any automations have an average DSO of 47 days.
The pandemic has made the automation stakes even higher for firms. Those that have implemented few or no technologies have faced significant DSO increases, and this trend is especially evident in the construction and healthcare sectors. Construction companies that leverage few or no automation technologies have experienced average DSO increases of 20% from before the pandemic’s onset while healthcare companies reported an average increase of 17%.
Championing Automated AR Processes
This suggests that automation implementation can have a significant positive effect on firms’ cash flow management operations, especially as virtual work is likely to remain a reality for some companies after the pandemic has passed.
Sluggish, manual AR processes hinder the speed and efficiency of AR functions such as invoicing, customer credit checks, and the collection and reconciliation of receivables, ultimately resulting in longer DSO measurements and reduced net revenues due to AR management inefficiencies and delayed payments.
Automating certain processes, especially invoice delivery and payment acceptance, tends to be notably successful in reducing DSO. Finance leaders who are championing automated AR processes within their organizations must determine how to invest in these crucial technologies that can reduce costs, lower DSO averages and make their organizations more resilient to future cash flow challenges.