Topics: Day Sales Outstanding, Disputes, Invoicing & Payments
Just like the rest of us, AR is being pushed to do more with less. The consequence is little or no time is left for AR to work on improving collections and predictability of cash flow. What if your AR staff could find time to get ahead of delinquencies and proactively address collection issues before they occur? What if they could find time to analyze payment terms impact on days sales outstanding to guide sales? What if AR could predict payment patterns and cash flow to keep treasury informed? AR would increase cash flow, which means money.
Your AR team can create value if they find the time. But guess where AR is spending their time? Globys continuously talks with and surveys customers and other accounts receivable professionals to collect data on how AR departments spend their time and what their challenges are. Here is the breakdown in terms of most to least amount of time spent:
1. Inquiries/disputes
2. Following-up on status
3. Dunning
4. Cash application
5. Uploading invoices into customer portals
6. Customizing invoices for customers
7. Cash-flow Analysis
8. Advising other departments
Automating those activities and shifting AR time to analysis and advising is how you find time. In fact, a PwC report indicated that while scale and complexity drives up cost of finance within billing and collections, top finance organizations have 40% lower costs and spend 20% more time on analysis compared to data gathering. In other words, top finance organizations are spending more time on value creation compared to their competition.
A simple ratio helps track where a company spends time especially relative to its peers. If the company has two AR professionals that collectively spend ninety percent a week on collections and ten on analysis and advising, their value creation to collections activities ratio would be 0.11 (i.e., 10/90). In the most recent Globys benchmarks, the median AR departments are in the range 0.1 (9% on analysis) to 0.2 (17% on analysis) for the value creation ratio.
Where does your AR department stand? What is the ratio of time your AR department spends on collections versus improving collections? Knowing where you are is step one. Step two is making a goal to improve. Step three is getting there.
The fact is accounts receivable can have a big impact on company performance when it shapes decisions on credit and payment terms using data and analysis. Accounts receivable can have a big impact on company performance by predicting cash flow and guiding cash management decisions.
