Can A/R Automation Improve My Liquidity?
In a recent KPMG poll, more than 80% of senior financial executives
surveyed said that working capital management is one of their
highest priorities. As with every economic downturn, liquidity has
become more top of mind in the corporate community. Credit
markets have either dried up completely or become cost prohibitive
to borrow in, forcing companies to focus more attention on improving
internal processes, and no process has received more attention than
strengthening working capital.
Working capital serves as the measurement of liquidity available for
day-to-day operations during the cash conversion cycle and
is defined
as current assets (accounts receivable, inventory and short-term
notes) less current liabilities (accounts payable and short-term debt).
The cash conversion cycle is impacted by three processes: receivables,
inventory and payables.
Are these three areas for
improvement significant
to the bottom line?
The answer is yes.
According to Killen
Associates, “a
typical
billion-dollar company
spends approximately
$27 million annually for
unnecessary working
capital and inefficient
processing functions because
they lack visibility
in to the Financial Supply
Chain (FSC) and receivables.” Globally, it is estimated that
between $500 billion and $1 trillion is tied up in working capital
worldwide due to the inefficiencies in the FSC.
“Spending on
technology to improve
visibility to cash has
not
been reduced and, in
fact, may be on the
increase
because
of the current
economic crisis.”
Decreasing the amount of time required to collect open receivables
is a key priority for companies looking to improve their working
capital position. In fact, a recent white paper from Tatum points out
five mistakes CFO’s need to avoid. Of those mistakes only one is
related to process improvement: postponing the collection of cash.
Already operating with lean staffs, many treasurers and A/R
managers are seeking new ideas and technologies to improve operational efficiency, especially those that are complementary
to their current lockbox and ERP infrastructures.
A November article from the Association of Financial Professionals
notes that even though spending has been reduced for most areas, “Spending on technology to improve visibility to cash has not been
reduced and, in fact, may be on the increase because of the current
economic crisis.” To this end, automating the A/R process can
significantly improve working capital by:
- Reducing SG&A expenses associated with the receivables processing function including bank or in-house keying costs and accelerating cycle time to apply cash at the line-item level
- Increasing earnings by recouping millions of dollars lost annually through the reduction of invalid deductions and reducing the burden on personnel to research exceptions
- Increasing confidence in the Collections process by providing the most timely and accurate receivables data thereby compressing
DSO and elevating customer satisfaction
In any economy, and especially today, the most important commodity
is cash and ensuring the accounts receivable process is as efficient as
possible is a critical step to improving working capital and liquidity.
Contact OPEN SCANŽ today and find out how we can help you reduce
costs while improving the efficiency of your receivables process.
For more information on the sources cited above please visit:
www.kpmg.com
www.killen.com
www.tatumllc.com
www.afponline.org
