It’s fair to say the last year has been a challenge for everyone. But for Accounts Receivable (A/R), things have been especially tough.
Getting a steady flow of cash into the business has been more important and more difficult than ever before. Previously reliable customers have become unpredictable overnight. Companies have gone under without warning. And, in some cases, every paid invoice has felt like a vital lifeline.
It’s too soon to say what this year will have in store. Hopefully, with the rollout of vaccines across the globe, business will return to something resembling the norm in the near future. In the meantime, though, there’s still plenty of work to be done in A/R departments to overcome the cash flow challenges of a global pandemic.
That said, with the right mindset, many of these challenges can be viewed as opportunities.
Sure, processes will have to change to deal with new uncertainties – but that can lead to a more agile, streamlined and efficient department in the long-run.
With this in mind, here are our predictions for the changes we’ll see in the year ahead.
In 2020, many A/R departments learned the hard way what can happen when customers decide not to pay en-masse. It’s something any organization would take pains to avoid. But doing so requires the right insights.
In the past, basic metrics like invoice value and payment dates have been used to forecast cashflow. But today, you simply can’t rely on that data to paint an accurate picture of risk. When your most reliable customers may be the ones that suddenly drop off the radar, you need to be able to accurately identify risk – before it impacts the entire organization.
The only way for A/R departments to successfully identify and mitigate risk is by establishing an objective, data-driven view of likelihood to pay, and that’s something we expect to see companies dedicate themselves to in 2021. We also anticipate A/R enhancing their current customer breakdown by using some of the segmentation techniques often seen in Marketing and Sales to help categorize customers and identify not just who is really unlikely to pay, but how to go after them differently.
If these things are done correctly, departments will gain a better understanding of their whole customer landscape, and will be able to take better-targeted actions and collect more as a result.
In a lot of A/R departments, forecasting remains a largely finger-in-the-air process, built on hunches and assumptions. This might be something that happens monthly, or maybe even quarterly, and the results are ballpark figures at best. That didn’t cut it in 2020, and it won’t cut it in 2021 either.
With the business landscape changing day-to-day, and the fortunes of companies sometimes shifting overnight, forecasting needs to be both more regular and more accurate. After all, there’s no point looking a month down the line when you don’t know what tomorrow is going to bring. Instead, A/R departments need to know where they are today, where they’re likely to be the day after, and what the next week might look like as a result.
Improving the quality of forecasting takes time and resources. But the good news is, most A/R departments already have the data they need to create stronger forecasts – it’s just a matter of finding it all, bringing it all together, and building some repeatable processes around it. For that reason, we fully expect to see major investments in this area over the course of the year.
Not every change has to be about wide-scale transformation. There are also some simpler actions A/R can undertake to improve cashflow. A good place to start is by going back to basics and correcting all of the small, inefficient process elements that can add up to have a measurable, negative impact on payment times.
For instance, inaccurate customer master data is a well-known problem in A/R. But historically it’s a problem that’s been swept under the carpet; put off for another day, and another, and another.
The fact is, incorrect details in master data can delay payments by weeks. And in the current environment, any payment delay can have significant consequences. That means all these ugly, boring tasks, like reconciling customer records, need to be addressed promptly. And that requires a certain level of investment.
The good news is, if A/R departments can dedicate the required resources to it, correcting master data d can have a major impact on cashflow. That’s why we expect to see messy master data finally addressed in 2021.
Automation is currently a hot topic in every industry, promising increased efficiency, lower operating costs, and reduced human error. But when such a big part of A/R is getting on the phone to collect payments, you might ask what there is to automate.
The answer is, all of those small, time-consuming tasks that surround the core job of collection. Correcting master data — and keeping it up to date — can actually be one of these tasks. Data gathering efforts — which often span multiple systems — can also be automated. As can generating and sending invoices.
We expect to see A/R departments gain two major advantages from embracing automation over the coming year. Firstly, data accuracy will be improved and the chances of errors leading to late payments all but eradicated.
Secondly, employees will no longer have to focus on time-consuming rudimentary tasks like data entry, which means they’ll have more time to focus on what they’re best at – collecting payments.
It seems remarkable that we’re talking about paper invoices in 2021, but Accounts Receivable – and Accounts Payable, for that matter – is a function that still relies heavily on paper processes.
With workforces over the last year becoming decentralized, the digitization of these processes has never been more in focus. The last year has made it very clear that sending and mailing paper invoices, which requires going into the office, and expecting that someone else on the other end is also at the office to process that paper — is unsustainable. And there are some huge benefits to be gained in doing so.
Digital invoices are quicker to create and reach the customer electronically, which means cash comes in faster, and A/R professionals can spend more time focused on more critical tasks. In fact, this is one area where automation can play an important role, taking over invoice creation entirely, reducing manual errors, and improving efficiency.
Perhaps the biggest benefit of digital invoices though, is that they can be a vital source of data to fuel other initiatives, like gaining greater visibility into likelihood-to-pay. With that in mind, don’t be surprised to see paper invoices filed away for good this year.
Not knowing where or when the next payments are coming from can be a scary thing. Especially when margins are tight. Often, selling A/R can feel like a last resort— you simply aren’t going to get as much as you would if everybody paid upfront. But these are unique times, and there are some significant benefits to factoring that we think may turn some heads in 2021.
Namely, the risk of non-payment is eradicated, forecasting becomes a lot easier, and the resources you’re currently dedicating to chasing non-payments can all be put to better use within the organization.
Of course, all of this comes at a price. That’s why many organizations may see factoring as a short-term solution while they address the other considerations we’ve covered above. But when unpredictability reigns, sometimes the devil you know can provide a certain amount of reassurance.
2020 provided a huge challenge, for all of us. But it would be a mistake to think 2021 is going to be smooth sailing. Instead of hoping for the best, now is the time to plan for strategic change and make sure you have full control of A/R – even under the most testing circumstances.
To find out how Celonis can help you gain new insights, streamline processes and solve the cashflow puzzle in your organization, check out the Celonis Execution App for Collections Management.
Celonis believes that every company can unlock its full execution capacity. Powered by its market-leading process mining core, the Celonis Execution Management System provides a set of instruments and applications, the Celonis Studio as well as platform capabilities for business executives and users. The Celonis EMS offerings help companies manage every facet of execution management from analytics to strategy and planning, management, actions and automation.
Insights to inbox - Monthly newsletter
Where Process Mining Enthusiasts Become Business Execution Leaders