The high cost of outdated AR processes

Editor's note: This article originally appeared on CFO Dive

Amid inflation and volatility, CFOs today face challenges on multiple fronts. The rising cost of capital has complicated cash flow management, while an ever-shifting economic environment demands that CFOs continually innovate new strategies to manage their working capital. 

“Finance executives are responding to recent trends by being fiscally tight with capital to start investing more strategically,” says Mona Kishore, Head of B2B Payment Partnerships at Capital One Trade Credit. “They’re looking for liquidity, as well as solutions to help them achieve predictable cash flow so they can focus on growth.”

Amidst uncertainty, focusing on defensive moves and amassing as much working capital as possible to weather the storm can be tempting. But, if CFOs want to lay the foundation for sustainable growth, they must also make offensive moves. 

For instance, strategic investments in accounts receivable (AR) technology can bolster short-term productivity and provide organizations with more levers to manage working capital. On the other hand, sticking to legacy methods and manual AR processes trades perceived savings for a significant short- and long-term cost. 

Here, we’ll discuss how outdated AR can erode an organization’s resilience and hamper long-term success — from increasing financial risk to weakening customer relationships — and why modernizing AR is critical to fueling growth.  

In challenging economic times, having cash on hand is king. However, relying on manual AR processes lengthens the order-to-cash cycle. As a result, businesses wait longer to get paid, weakening cash flow in the meantime. 

A manual credit decisioning process, for example, can delay the time to purchase by hours or days — and it can even prompt customers to abandon the purchasing process entirely. Even when customers follow through with a purchase, the seller can experience delayed time-to-payment. 

“The longer customers wait to pay you, the less cash on hand you’ll have to efficiently manage your working capital,” says Kelley Marko, Vice President of Marketing at Capital One Trade Credit. “When you extend credit to a customer, you might be waiting weeks or months to get paid.”

Then, of course, there’s the risk that customers don’t pay at all. While offering flexible credit terms can convey a competitive edge for attracting customers, it can also increase the organization’s credit risk.

CFOs are struggling with two major types of risk right now in managing AR, explains Kishore. One is the ongoing non-payment risk associated with extending credit to customers: Ensuring the business is lending to the right people and right-sizing their credit to minimize risk. 

The second, more significant, threat is fraud risk. FBI-reported fraud losses have risen dramatically in recent years, surging to over $10.2B in 2022, up from $6.9B in 2021. 

“Right now, fraud risk can pose a more significant threat than non-payment risk, whether that’s first-party like transaction fraud  or third-party such as account takeovers,” says Marko. “CFOs need to take into account all those risks when managing AR.”

However, the more disjointed and the credit decisioning process — and the fewer real-time insights that CFOs can access — the more difficult it is to manage risk and protect the organization proactively.

The past several years have seen significant innovation in consumer payments, and today’s B2B customers now expect a consumer-like payment experience as well. A seamless, convenient order-to-cash experience is no longer a “nice to have” — it’s required to compete in today’s market. 

“B2B is a growing segment for most enterprises, and a lot of the companies we speak to are intensely focused on customer acquisition,” says Kishore. “Competition is fierce, and if you’re not investing in your CX right now, it’s going to be harder to acquire customers in the future.”

Moreover, B2B customers are more apt to switch suppliers than ever as B2B relationships shift from being managed in-person to managed online. Nearly half (47%) of B2B shoppers say they’re less loyal to merchants due to working from home. And a staggering 40% say they’ve switched all their suppliers within the past year. 

The customer experience is crucial in a buyer’s decision to stay with a merchant. And enhancing CX can bolster retention by 42%. 

However, organizations still relying on manual AR processes and legacy solutions have limited opportunities to streamline the order-to-cash experience and provide the seamless CX that B2B customers expect. As a result, they’re undermining future potential for growth — and risk losing even their most loyal customers.

In a challenging macroeconomic environment, CFOs face pressure to increase efficiencies as much as possible. And those relying on legacy AR solutions have fewer opportunities to streamline workflows and boost productivity. 

“In a legacy environment, you have several manual hand-offs during the sales cycle and into the purchasing and payment process,” says Marko. “Sales, credit decisioning, shipping, billing and invoicing are often siloed, and if you don’t have automated processes in place and you have to do manual hand-offs every time, it’s very difficult to work efficiently and get things done.”

These delays don’t just dampen productivity; they also hinder the employee experience. Tasked with endless “busy work,” teams have less opportunity to focus on strategic initiatives. 

This is especially true in AR, where teams relying on manual processes spend 67% more time following up on overdue payments, for example, than those with automated workflows. “These tasks become a distraction,” says Marko. “If they were automated, teams could focus on more meaningful work that provides more value to the organization.”

Ultimately, organizations relying on legacy AR solutions find themselves at a significant disadvantage, with fewer levers to pull to face the challenges of today — and limited ability to adapt to the challenges of tomorrow.

Without flexible digital payment methods and streamlined credit decisioning, organizations struggle to manage working capital efficiently and manage credit and fraud risk. Without a seamless, convenient CX, they risk losing business. And without automated processes that allow employees to work more strategically, they miss out on insights from their teams. 

On the other hand, investing strategically in AR gives organizations a leg up in competing for customers, boosting operational efficiencies and successfully balancing working capital and growth.

In a recent survey of 450 finance executives commissioned by Capital One, researchers found that enterprises prioritize CX when considering using a third-party AR solution provider.

Why? Because manual B2B accounts receivable processes don’t only hinder efficiency—they could cost firms business. But that’s not the only reason CFOs are embracing a new way of managing AR. Discover the top 10 reasons and how a full-service AR solution like Capital One Trade Credit can help. Get the survey results.