Over the last twelve months, the business landscape in every industry has transformed almost beyond imagination. Various departments and processes have had to adjust to meet the demands of a new and unexpected environment. And for Accounts Receivable (A/R), the pressures have never been greater.
The day-to-day is now a balancing act. A/R departments must mitigate risk and go after the customers most likely to pay, ensuring a steady flow of cash comes into the business without pressuring them unduly.
Many A/R departments have stepped up their technological investment, looking to digital innovation to help transform processes, deliver deeper insights, and improve the productivity and effectiveness of the function. The question is, is it really working?
The short answer: not for everyone. Not yet.
At Celonis, we regularly see rigid and fragmented systems stifle an A/R department’s ability to perform to its full potential.
In fact, throughout all Procure-to-Pay and Order-to-Cash processes, we see productivity outputs fall far below expected execution capacity. The complexity of companies’ system landscapes hampers their ability to perform to their full potential — and that can be a source of immense frustration when big investments have been made.
We set out to quantify the impact of this execution capacity problem. Enter the 2021 State of Business Execution Benchmarks Report, which surveys more than 2,000 leaders across six countries and eight industries across four business functions — including A/R. It covers the challenges businesses are facing, KPI benchmarks for each function, and the financial delta between average and top-performing companies.
Here are three important lessons for A/R departments based on our findings.
The promises of new technology can be alluring. But there’s no sense investing in the next big thing unless you have a strategy in place to ensure all your systems and data play nicely together.
Many Accounts Receivable departments have been investing heavily to help them manage risk in a time of crisis, turn reactive processes into proactive ones, and identify the customers most likely to pay — or not, as the case may be.
Despite this, our research found that three major problems still stand in the way of them achieving these goals.
According to the 500+ A/R leaders surveyed, and in line with our hypothesis, the three biggest obstacles getting in the way of performance are ‘rigid systems and technologies’ (42%), ‘a fragmented data landscape’ (40.4%), and ‘broken or inefficient processes’ (40%).
These are the top three barriers to executions A/R departments need to overcome to maximize their capacity to execute and accelerate their cash flow.
One thing is clear, not every organization is struggling to the same extent. The report showed a huge discrepancy between the results of the ‘top-performing’ and ‘average’ A/R departments.
As an example, there’s a 27% difference in the collection effectiveness of average and top-performing companies. And Days Sales Outstanding more than doubles in average A/R departments.
Although this may sound concerning, especially if you suspect your own department is not where it should be, it actually presents a huge opportunity for those looking to improve the way they work. According to our calculations, the average company stands to free up hundreds of millions of dollars in working capital, simply by improving their Days Sales Outstanding (DSO).
The A/R departments we spoke to are prioritizing these three KPIs this year: Collection Effectiveness Index, Operational Cost of Collections per Customer, and Days Sales Outstanding. (Exact percentages in the report.)
These are all significant areas to focus on. But we also found that many A/R teams are led by priorities that might actually be holding them back. For instance, 71.3% of collectors still prioritize invoices by age and value.
At a time when cash flow is vital and even the most dependable clients can suddenly drop off the radar, this is a risky strategy — your collectors could be spending their time chasing invoices that are simply not going to materialize. A/R departments that haven’t already, urgently need to start taking likelihood to pay into account when prioritizing, not just age and value.
To do this, you need to be able to categorize customer risk, not just based on historical data but also on the realities of the current situation.
You can read our full 2021 State of Business Execution Benchmarks Report for further insights into the business performance of Accounts Receivable and three other departments; Accounts Payable, Procurement, and Order Management.
Unsurprisingly, our survey found execution gaps in each of these functions. However, we know from first-hand experience that viewing this as an opportunity rather than a problem can lead to significant returns.
And if you’d like to learn how Celonis can help you maximize the execution capacity of your Accounts Receivable department, check out the Collections Management Execution App.
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.
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