Credit sales in the business-to-business (B2B) landscape are riddled with the risk of past due invoices and bad debt which affects your cash flow. Getting paid on time is not always the outcome of credit sales, businesses encounter late-paying customers, and other disputes that hurt your cash flow. Though using an automation solution can reduce the risk of invoicing and payment-related disputes, this will resolve the risks from a vendor’s end. Does this have any effect on the client’s end? Can you mitigate the accounts receivable risks (AR) with automation?
Common Accounts Receivable Risks Faced by CFOs
The AR collections are managed by CFOs, whereas the administrative tasks including invoice creation, dunning, collections, and reconciliation are handled by the finance teams or AR teams. Manual handling of the AR process is often time-consuming and riddled with errors and disputes. This delays the AR process from the vendor’s end and it poses a risk for businesses and industries of all sizes.
1) Bad Debt Due to Manual Processes
Manual AR process handling is time-consuming and error-prone, causing invoice-related disputes that lead to cash flow delays. When your invoices and bills have errors on them, you need to revise those and send to the customer again for payment. The time it takes to send the invoices to the customer extends, delaying your cash flow. If the disputes take longer to resolve, the invoices get overdue, increasing the chances of bad debt. Changing market conditions and inflation increase the complexity, making it more challenging for customers to make full payments or any payments at all, resulting in uncollected debts. All these issues from a vendor’s end not only delay your collections of accounts receivable, it bottleneck your cash flow. This limits you from investing in new projects, hindering your business. Eventually, this affects your business’ financial health.
2) Risk of Fraud Due to Traditional Processes
A traditional accounts receivable process is dependent on independent spreadsheets and data silos to record invoices and order number information. The payments are accepted by cheques, increasing the chances of forgery. Due to the lack of digitization, there is no transparency. This increases the risk of unauthorized access to financial records for personal gain, invading the confidentiality of businesses and the privacy of your customers.
3) Lack of Visibility into the Process
Your entire AR team is busy matching invoices, collecting payments, and reconciliation of invoices. They reach out to customers by phone and email to remind them to pay their invoices. What is the position of the particular account, which account is outstanding, and who is the top debtor? All these questions need to be answered by the CFO, or filled in the spreadsheet. This is not only time-consuming, but also painstaking for the finance teams to manually enter data and keep the sheet updated. The traditional accounts receivable process is to blame because it lacks visibility into the customer accounts, invoices, and payments. Due to a lack of visibility, the finance teams take longer to track invoices and send dunning notices.
4) Customer Frustration and Negative Experiences
Ensuring positive customer experiences in the B2B landscape is what keeps your business running. This also creates a positive client-vendor relationship. However, sending invoices with errors or sending them to the wrong address frustrates customers. Your reaching-out strategy should encourage customers to pay, instead of ruining your relationship. Lack of digitization restricts your clients in many ways. From getting invoices and reminders by mail to paying invoices in cheques is time-consuming. One error in the invoice can frustrate customers and more negative experiences can lead to attrition.
Mitigating Risks with Automation Solution
Transforming your accounts receivable process with an intelligent solution can mitigate these risks and enhance customer experiences. Automation replaces manual paper-based invoice-to-cash cycles with AI-powered solutions for increased efficiency. The following are the solutions to mitigate the risks discussed above.
Invoice Automation
The first step in the invoice-to-cash process starts with invoicing. Making this process efficient helps you kick-start your process, where invoices are auto-created and sent to your customers. With B2B collections automation, the productivity of your finance teams increases, allowing them to work on strategic tasks. One of the crucial benefits of invoice automation is error-free invoices that are sent timely and accurately to your customers. With customers getting invoices on time, this increases the chances of getting paid early.
Optimizing Credit Management
To enhance credit management and reduce the risk of bad debt, it's essential to optimize the entire credit-to-cash cycle. This will help you determine the payment behaviour of your customers, identify the high-risk accounts and reduce the chances of bad debt before it happens. In addition, your AR automation solution empowers you with a platform dashboard, showing you crucial data including outstanding invoices, and aging AR among others. This enhances visibility into your invoices and payments, enabling your CFOs and finance team to track them without losing any information about your customers. Automation improves the accuracy of your processes by eliminating data inconsistencies, ensuring consistent ledgers, and empowering your CFOs with financial reports for informed strategic decision-making.
Improved Security Confidentiality
With an automation solution, you will control the access of the AR system, restricting unauthorized access. This will ensure the safety of your data and the confidentiality of your customer’s information. In addition, accepting electronic payments will save you from fraudulent payment methods. These cloud-based automation solutions safeguard your data against potential disasters. Since the data is stored on remote cloud servers, it remains accessible even in emergencies.
Ensuring Positive Customer Experiences
When your invoices are accurate, and sent to your clients promptly, there will be very few invoice-related disputes. Embracing automation replaces your cheque-based payment system with electronic methods, allowing your clients to choose their preferred mode of payment. This expedites the payment from customers, while payment processing also speeds up to improve your cash flow. The customer portal is a value addition, allowing your clients to take control of their payment preferences and enabling them to track their payment history and communicate with their vendors.
Our Verdict
In the B2B financial landscape, businesses engage in credit sales but getting paid by customers is a challenge to handle with manual AR processes. The common challenges include the risk of bad debt, payment fraud, lack of visibility into the process, and negative customer experiences. Embracing automation resolves all those challenges, improving the efficiency of your invoice-to-cash workflows while freeing your AR team to manually enter data and manage AR operations. However, implementing an automation solution will be a challenge to be accepted by the finance teams. But optimizing your AR process helps you get paid on time, resolving cash flow issues and retaining your financial health. In addition, this empowers you to compete with other firms in the industry, gaining competitive advantage.
