Why automating accounts receivable can be worth every penny

Are you struggling to maintain your margins as inflation and interest rate rises bite? The past 12 months have been challenging for many businesses with supply chain disruption, goods shortages and soaring energy prices making it harder than ever to turn a profit.

Construction, accommodation and food services, and retail businesses have done it particularly tough, with the first category accounting for 28 per cent of all insolvencies in 2022, according to NAB research.

Market watchers aren’t expecting things to get a whole lot easier over the coming weeks and months. Advisory and restructuring firm McGrathNicol has highlighted the fact that 2023 is the first year since the pandemic in which businesses will no longer be able to take advantage of government support or lender leniency.

“In addition to a normalisation of the rate of corporate failure, we expect that economic and regulatory factors will lead to more insolvencies,” said the firm’s forecast. “Businesses experiencing distress will have less support from available stakeholders to successfully effect a turnaround.”

Cash flow is king

When times are tight, many customers try to slow down their payment cycles, holding off for a few extra days or weeks until the second reminder or phone calls from accounts receivable become uncomfortably frequent.

If your enterprise is regularly on the receiving end of these stalling tactics, you’ll know how frustrating and time-consuming chasing up overdue payments can be.

And you’ll also know the detrimental effect bad payers have on your balance sheet, profit and loss statement and cash flow. Your working capital and profitability may be materially impacted, forcing you to borrow money – at rising interest rates – to cover the shortfall. Profitable opportunities to expand your operations may have to be relinquished as a result.

In a worst case scenario, a cash flow crunch could send your otherwise healthy enterprise to the wall – a calamity which is likely to befall numerous small suppliers in the hard-pressed construction sector this year.

Take advantage of automation

Fortunately, there are steps you can take to reduce bad debts and get cash flowing into your business faster – and they don’t involve upping the headcount in accounts, either.

Many accounts receivable departments are operating in manual mode, using legacy processes and solutions to track debts and pursue debtors whose accounts are overdue.

Implementing an automated accounts receivable platform can turbocharge efficiency by streamlining the collection and discharge of debts, and the dunning process within your organisation.

Businesses that have made the switch have reduced manual processing activity by 85 per cent and can cut their unapplied cash and payments by 99 per cent. At the same time, they are increasing their productivity in collections by more than 35 per cent while slashing aged debt to under 30 per cent.

Better business

Automating your accounts receivable function doesn’t just boost cash flow by making the collection of payments simpler and faster. It can also enable you to make more informed decisions about who to do business with, and how.

Having up-to-the-minute visibility into the payment status of all your customers, as well as a picture of their payment patterns over time, makes it easy to identify those who don’t comply with your payment terms or need to be repeatedly chased to settle their account.

Armed with this knowledge, you may choose to modify your credit terms with them or instigate an automated follow-up process that reflects their typical payment behaviour. Should a business only settle its account after two email reminders and a phone call, for example, taking those actions in faster-than-usual succession may result in a faster-than-usual remittance.

By proactively managing debtors in this way, you’ll be derisking your operation, reducing the opportunity for poor payers to slip under the radar or for bad debts to take you by surprise.

Conversely, knowing who your good customers are makes it easy to decide whether to extend additional credit, should it be requested.

Remain profitable in FY2024

Safeguarding profitability and cashflow is an imperative for all businesses. Harnessing the power of an automated accounts receivable solution can help you to do so, simply, swiftly and cost effectively. It’s foundation technology that will help your organisation better navigate the uncertain economic conditions that are likely to persist in FY2024 and beyond.

Danny Wheeler is solution strategy and marketing manager at BlackLine.