MODERNIZING AR: AUTOMATION AND CUSTOMER

ENGAGEMENT
By Ernie Humprhey, CEO & Founder, 360 Thought Leadership
Consulting

An often-ignored benefit of automating accounts receivables (AR) processes is the opportunity

to engage customers in a way that directly benefits the bottom line. “Happy customers pay
more quickly, they pay it all, and they are receptive to suggestions on how they pay you,” said
Ernie Humphrey in a recent Treasury Webinars session. “AR excellence is driven by the
relationships that your AR team has with your customers, and those relationships are inherently
more positive with automation support.”

The CEO of 360 Thought Leadership Consulting, Humphrey described how automation and the
resulting analytics can help AR professionals to better communicate with and engage
customers—a key goal for many CFOs. This ultimately improves AR performance on all pertinent
performance indicators.

This article summarizes Humphrey’s advice on how to identify opportunities for AR automation,
how to improve customer relationships through automation, and probable benefits from which
to build a business case for AR automation investments.

OPPORTUNITIES TO AUTOMATE AR ACTIVITIES

As AR evolves from back-office function to a true intelligence hub, there’s a greater focus on
customer relationship management and the potential derived from automation. Humphrey said
automation of AR processes can propel the function to better performance and customer
interactions. “Once we start to focus on AR automation and the value that can be obtained,
we’re seeing AR become an absolutely strategic function and a true intelligence hub,” he said.

To evaluate how automation can improve AR, Humphrey recommended examining the five core
responsibilities of the AR function.

1. Presentment—Publish invoices and supporting documentation

2. Collaboration—Communicate with customers
3. Collections—Invoice-related activity and payments
4. Payments—Payments received and payment type
5. Cash application—Clearing open invoices with payments received

For these responsibilities, organizations can map out the processes with a high level of detail in
terms of process flow, technology, and the people involved. This exercise should reveal both

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 pain points and potential actions to add value to AR outcomes. “When you’re looking for
excellence in any financial area, you need to see where you’re at, where you want to be, and
how you’re going to get there,” said Humphrey. “To do so, you need to look at your entire AR
process, your KPIs, and benchmarks and then gauge the gap between your current and desired
points.”

Of special importance is mapping all customer touchpoints in order to review the coordination,
tone, and types of messages. With this information, organizations can determine if they are
communicating efficiently, conveying the right information, and controlling the tone and
leveraging the most useful channels of communication.

Humphrey highlighted typical pain points that process mapping may reveal for each activity:

1. Presentment—Inefficient invoice exchange

2. Collaboration—Misalignment on invoice terms, ineligible discounts taken, and
communication barriers
3. Collections—Lack of relationship visibility (into payments history, issues, and dispute
resolutions), information asymmetry, and manual tasks and notifications
4. Payments—Delinquent payments and checks (which cost more)
5. Cash application—Inaccurate or incomplete remittance information

“Part of getting consensus in investing in AR is understanding what the needs are of your AR and
collections team,” said Humphrey. “These pain points not only increase costs but also the time
devoted to non-value add activities to process payments.”

For example, during presentment activities, customers may lose invoices, disagree on invoice
terms, or not have the time to communicate problems (Figure 1). The can result in higher
processing costs, more days sales outstanding, and less visibility. To align with customers on
these terms, organizations can use process mapping to reveal opportunities for process
improvement and where automation might deliver value, said Humphrey.

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 AR: The Messy Middle

Figure 1

THE CUSTOMER EXPERIE NCE AND AUTOMATION

Each interaction with a customer matters. Humphrey said that the aforementioned pain points
can hurt customer relationships, but technology can directly address many of these challenges.
For example, customer relationship management systems can reveal what customer
interactions occur across departments, central customer portals can allow organizations to
coordinate dispute responses, and automated data capture of all customer interactions can
provide visibility for managing communications standards.

With a process map in hand, Humphrey suggested meeting with every employee that interacts
with customers to better understand process pain points and determine what process
improvements and automation investments can help.

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 Humphrey also suggested tracking the following customer relationship success metrics to
determine where to focus resources:
 Late payments monthly trend
 Deductions monthly trend
 Top 10 reason codes for late payments
 Top 10 reason codes for deductions
 Average number of days to resolve a deduction
 Average days to resolve a delinquent payment
 Top 10 delinquent customers

“All of these metrics reflect the degree of success in managing customer relationships,”
-Humphrey

Consider the example of collections management activities. Many organizations face challenges
in lost productivity from manual follow-ups, tracking collections metrics, and inadequate
customer data. Organizations can isolate such pain points and invest in automation to mitigate
or completely eliminate the problems, said Humphrey. He suggested tracking the following
collections management metrics:

 Past due amount (weekly and monthly trends)

 Days sales outstanding
 Collection efficiency indicator
 Top 10 delinquent reason codes
 Average days to resolve a delinquent payment
 Top 10 delinquent customers

“The results reveal the drivers in each area to move the needle in the right direction,” said
Humphrey. “If we look at collections effectiveness, we can start to knock off these challenges
with technology.” Organizations can then automate, for example, customer correspondences
and the integration of credit, disputes, and cash.

AR AUTOMATION SUCCESS
For every AR responsibility, automation can provide a means to automate transactional
responsibilities, generate insights and data, and provide visibility to manage the end-to-end AR
process (Figure 2). Humphrey detailed how automation can streamline and improve AR
activities.

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 Automating AR Activities

Figure 2

Invoice presentment
 Multiple delivery channels—Deliver invoices through multiple channels including email,
mail, and a customer portal
 One portal, all invoices—A single view of all invoices and supporting documents, regardless
of division, time frame, or delivery channel
 Delivery with certainty—Invoices are tracked from delivery through to payment, with
event-triggered prompts and confirmations

Collaboration
 E-adoption—Draw customers online through a variety of customer-centric features
including intelligent email and express user access
 Efficient communication—All interactions with customers occur online so that the entire
team has the context and visibility needed to serve customers and resolve disputes
 Seamless collaboration—Enable the AR team to communicate online, which enables a
complete record of customer interactions

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 Credit and collections management
 Process automation—Automate routine tasks so that collectors can focus on the customers
that can’t or won’t pay
 Customer self-service—Access to accurate data, proactive reminders, and intuitive online
tools
 Visibility across the organization—Leverage data from the current ERP and billing system
 Flexible payment choices—Allow customers to pay one or more invoices, short-pay at the
invoice or line-item level, apply credits, and set up automatic payment plans
 Intelligent credit card acceptance—Dictate when to accept credit card payments, and
create incentives for early payment

Cash application
 100 percent accuracy for online payments—Payments made are automatically posted to
the ERP system with guaranteed accuracy
 Automation for offline payments—Most payments made outside of the system can be
imported and matched automatically
 Support for multiple data formats—Support for standard and proprietary formats enables
import of payment and remittance data from various sources

BOTTOM-LINE IMPACT FROM AUT OMATION

Ultimately, automation should significantly push the needle on key AR performance indicators
including days sales outstanding, deduction days outstanding, bad-debt write-offs, cash
projection accuracy, and the total cost of AR operations. Humphrey referenced benchmarks
from APQC’s Open Standards Benchmarking database, which show a significant difference
between top and even median performance (Figure 3). Humphrey attributed this large variance
in key performance indicators to the embrace of automation by top performers.

AR Key Performance Indicators

Measurement Top Bottom

Measure Median
Category Performers Performers
Total cost to perform the process
Cost
“Process accounts receivable (AR)” per $3.93 $11.47 $42.37
Effectiveness
customer receipt
Cycle Time Days sales outstanding 30.0 36.0 48.0
Number of FTE’s that perform the
Process
process “Process accounts receivable 2.3 4.1 7.3
Efficiency
(AR) per $1 billion revenue

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 Number of receipts processed per FTE
Staff Productivity that performs the process “Process 20,153 7,696 2,600
accounts receivable (AR)”

Figure 3

Such numbers build a compelling business case for AR automation, said Humphrey. He
suggested carefully developing a customer-focused business case that takes into account
frontline employee pain points. For those building a business case for automation, he outlined
the following ten anticipated impacts to the bottom line:

1. AR automation removes manual processing and associated errors, which lowers AR

processing costs.

2. AR automation mitigates time wasted internally communicating within and across

departments about AR-related issues, which also lowers AR processing costs.
3. AR automation mitigates bad debt write-offs.
4. AR automation mitigates disputes with customers by removing the asymmetry of
information and facilitating effective communication.
5. AR automation improves the productivity of all those involved in processing receivables by
allowing more focus on value-added activities.
6. AR automation improves the customer experience, which improves the collections
timeframe.
7. AR automation can lower AP processing costs for customers, which improves customer
relationships.
8. AR automation can eliminate the need for a lockbox and all related fees.
9. AR automation improves the forecasting of cash, thus improving working capital
management.
10. AR automation mitigates the use of internal IT resources.

“I strongly encourage companies of all sizes to look into automating AR processes. AR

automation done right lowers AR processing costs and facilities effective performance
reporting, which boosts productivity within and beyond AR. And most importantly, AR
automation can positively impact customer relationships. AR automation helps
companies get paid, and get paid on their terms.”
-Humphrey

ABOUT APQC
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