The Dangerous Status Quo of a Legacy AR Process

This blog post delves into the transformational power of automation tools for accounts receivable processes, highlighting potential costs of sticking to legacy systems.

According to recent research from PYMNTS, 67% of firms reported they did not use automation for their accounts receivable (AR) process, with only 20% of firms automating more than half of the AR process.  

These statistics imply that CFOs do not fully recognize the value of optimizing how they deliver and track invoices, collect payments, and post to their accounting systems. As all finance leaders know, cashflow is the lifeblood of a healthy business -- so, if most firms aren’t doing it, there must be no benefit to AR automation…right?  

In this three-part blog series, we will explore why the statement above is false – and why firms should be adopting tools that incorporate automation into their AR processes.  

In this post, we’ll define what a legacy AR system looks like and how sticking to this status quo can cost your firm.   

What does a legacy AR process look like?  

Automation and digital transformation are two concepts regularly mentioned within professional services firms of all shapes and sizes. Many firms believe that incorporating simple, disjointed features and workflows into their systems allows them to check a box for their mandate to evolve their business processes.   

Unfortunately, this isn’t true. Described below are the features of two hypothetical AR processes that rely on traditional methods. If your current AR strategy looks like either of them, you may want to re-think how to adopt a modernized, automated, tech-forward approach to enhance your AR operations.    

Legacy AR Strategy #1 
  • Storing data in Excel spreadsheets 
  • Mailing invoices and receiving paper checks 
  • Manually inputting data  
Legacy AR Strategy #2 
  • Using a traditional legacy system that isn’t purpose-built for the organization’s needs 
  • Sending one-off emails followed by a manual reminder email 
  • Reviewing and reconciling various third-party disparate payment portals 
  • Manually inputting of data 

Why are these strategies less than ideal? Because although they may have worked in the past, they are quickly becoming outdated. They lack the necessary functionality to manage your billing and collections process – which are often complex, mission-critical, and labor intensive. 

Consider three areas in which a failure to modernize your approach may prove detrimental to your AR strategy.  

Data Management 

Traditional AR processes can be spread across multiple programs, processes, and portals. Physically, these processes involve handling checks, binders, mail, and bank transactions. Digitally, they encompass using enterprise resource planning (ERP) software, point solutions, Excel spreadsheets, and banking portals.  

This scattered approach can lead to disorganized (or even worse, erroneous) data and missed insight. Fractured reporting methodologies can also leave people in the dark about their company's financial status. They put companies at risk of errors, fraud, and missed revenue. 

Time Management  

Manual processes hinder your firm's ability to operate effectively. As depicted above, necessary information can be difficult to track. Combing through different sources to manually update your sales journal reduces the time your firm could be looking for ways to grow and support more strategic initiatives. 

Cash Management 

Getting paid should be fast, easy, and predictable. Legacy processes and systems prolong the process by relying on payment methods requiring manual intervention. The moment a customer reviews an invoice, they should be able to send money for payment – and the moment they pay, it should automatically reconcile. The process shouldn’t include any delays, errors, or manual intervention.  

The Benefits of Automating AR 

Automating AR offers numerous operational and financial benefits. By minimizing the time spent on manually sending, tracking, and applying payments for invoices, you can allocate more time to crafting strategies that expand your business.  

Having a healthy cash flow also allows your company to explore new ventures and take on additional business without stretching your capital too thin. According to PYMNTS, CFOs using automation acknowledge a reduced risk of fraud and fewer days of delay related to invoice tracking (82%), labor shortages (79%), invoice errors (73%), and payment exceptions (64%). 

The Status Quo Trap 

Despite the clear benefits of AR automation, why do many companies still use little or no automation?  

The answer lies in change management. It’s challenging to change processes that have been in place for a long time, especially those related to how your company collects money it is owed. Sticking with less-than-optimal processes seems easier as long as it doesn't disrupt your cash inflow. 

However, with a growing number of CFOs (64%) recognizing the strong need for AR automation, complacency puts your company at risk of being left behind as competitors evolve their collections process and improve their cash flow.  

In our next blog post, we'll discuss why your company should aim for the lowest Days Sales Outstanding (DSO) possible and provide you with a strategy of how to accomplish this.