By Matthew R. Gomez
For a profession that seemingly hasn’t changed since Caesar, automation is on the way
In case you haven’t noticed, it’s tough getting people to pay their bills these days. After several years of painful economic reality, 2011 arrives not with a burst of optimism, but rather with a profound sense of caution and fear for many business professionals.
And guess who is responsible for making sure bills still get paid despite the economic uncertainty?
Accounts receivable professionals everywhere have been tasked with lacing up their running shoes and chasing after clients left and right just to get them to commit to a regular payment schedule.
“I talk to people and they’re always pushing their 30-day and 45-day terms,” says Cheryl Clancy, shared services analyst at GT Technologies in Westland, Mich., which manufactures valve train components and systems for gas and diesel engines. “They’re holding off payments as long as they can, which sometimes leads to late payments.”
Clancy works with many companies, including some of the biggest names in the automotive industry – GM, Ford, Chrysler, Delphi, and Caterpillar. Seismic changes in that industry are still causing aftershocks, and Clancy estimates they may last well into the new year and have a huge impact on accounts receivable. She knows firsthand how difficult it can be to secure payments in difficult times.
“Automotive makes up 95 percent of our dollar volume, and they won’t spend on anything these days,” she says. “I have to see where else we can make headway to help my collection efforts. They are all affected by the weak economy.”
But that doesn’t mean she won’t stop trying. Clancy’s efforts are direct and, she says, necessary given the tentative nature of the U.S. and global economy. In the face of diminished staffs and augmented workloads, someone still has to make sure the bills get paid. Increasingly, says Clancy, that responsibility may fall to improvement of an automated process for collections, but in the meantime, old-fashioned “nagging” still rules the day.
“Are there problems with the invoice or purchase order? I need to know,” Clancy says. “Our clients may get upset when we call them for being three to five days late with a payment, but we do it because we have to make sure they’re not going out of business.”
Clancy sees a definite trend toward automation in AR as it relates to greater efficiencies with client collections. And despite the sometimes complex nature of technology, she welcomes the innovation from a historical perspective.
“Accounting is accounting; it’s been the same way since Caesar,” she says. “Nothing has really changed. If you can automate the process to make it more efficient and more affordable, why wouldn’t you? Even if you don’t have money to spend on automation, there’s money to save. It just makes sense.”
Recognizing the value of receivables
While some companies view AR as a constant chase to track down the dollars, others see receivables as a rich resource from which to grow company business.
John Barton, executive vice president of operations for The Receivables Exchange based in New Orleans, holds receivables in very high regard.
“We look at receivables as the most undervalued, underutilized asset on the balance sheet aside from cash,” Barton says.
The Receivables Exchange allows small to midsize companies in business-to-business markets to sell their receivables as collateral in online auctions as a means of gaining working capital to advance company growth while keeping up with day-to-day financial obligations.
“Receivables are a tremendous, undiscovered opportunity for companies to leverage their customers’ credit,” Barton says. “That’s an underappreciated asset that has not been used by companies to piggyback the larger credit ratings and get a lower cost of funds to keep business moving forward.”
More than 1,200 companies from across the country are involved with The Receivables Exchange, and more than 45 industries are represented. Scores of banks and institutional investors bid on the online exchange to place a market value on receivables that sellers can use to acquire capital for future growth.
“Large companies have the resources to issue stock and issue debt. Smaller businesses do not,” Barton says. “We wanted to be a capital market for private companies, and saw the receivable as the underlying unit of trade to make that happen. This is really an opportunity for small businesses to gain access to capital markets.”
Barton says the Exchange “drives an incredible amount of automation into AR” by helping small businesses adapt to electronic invoicing. And their services help automate the back-end business functions as well.
“When our sellers create options, they send electronic invoices,” he says. “There has been a lot of talk about converting to electronic invoicing in AR, but the Exchange provides incentives to do it. We are helping to drive that trend toward a paperless AR environment.”
On the back end, The Receivables Exchange handles all of the payment processing for businesses in its system and manages all the matching and reconciliation.
Barton says the Exchange’s use of automation equips smaller companies with resources to which larger institutions have become accustomed, such as the use of a lockbox. That function, he says, is often misunderstood by smaller businesses, but it can provide a huge advantage when it comes time to getting bills paid to keep the company operational.
Many small businesses can’t afford their own lockbox, but as a member of the Exchange, they get the benefits of one centralized lockbox. Through a lockbox, small businesses get a view of their remittances just as a major corporation would. They can view check images and see which invoices are paid the same day information is received on the Exchange. Businesses may also import data into their financial software, such as QuickBooks.
“We’re able to bring economies of scale to smaller business,” Barton says. “The use of a lockbox can decrease the float of a check that could end up languishing on a secretary’s desk. Businesses receive a safe, secure method to accelerate the conversion-of-funds cycle and make those funds available faster.”
Filling the information void
Have you ever Googled yourself? If you haven’t, odds are great that others have. And the information they find about you or your business may have a dramatic impact on your credit rating.
The social web – including Google, Bing, LinkedIn, Facebook and Twitter – is becoming a hot trend for AR professionals as it relates to gathering information about your business.
If you think these social sites should be “none of your business” as it relates to AR, you may be in for a surprise. And it’s not all bad.
Last year marked the first time the social web began to have an impact on credit and collections, says Alex Cote, vice president of marketing for Boca Raton, Fla.-based Cortera, an online source for financial intelligence and credit information about companies. “It’s certainly a trend that will grow in 2011.”
And it’s not just about using Google and Facebook to improve social capital among clients. These innovations with technology are now allowing businesses to predict and identify the kinds of behavior that can lead to red flags for accounts receivable.
Cote, who works in Massachusetts, says this trend toward leveraging the social business web for AR and credit functions may be even more advantageous for small businesses. He sees a great opportunity for AR to help support sales in a way that can grow revenues through better customer metrics. The credit department, he says, can help sales grow if only companies will let them.
“Financial and credit pros are always looking for better information,” says Cote.
“The Internet and companies like Cortera are helping to fill this information void. AR knows a ton about the customer base. That knowledge can be very valuable to salespeople as they try to find creative ways to get new business.”
Credit and collections data are becoming more embedded in the sales process, Cote says. Imagine having the ability to use the social business web to paint a clearer picture of what the client can spend on your services.
“Companies have to think about the risk as we enter into new arrangements with customers. It’s great to get the deal, but are we going to get paid?” Cote asks. “You’ve sold them $5,000 worth of products. Well, the credit department has given them $15,000 worth of credit. There’s a large delta there that could lead to broader revenue opportunities, but sales has to use the information to its advantage.”
Cote and his Cortera colleagues see finance and credit working together more closely in 2011. It’s not all about revenue, says Cote, but profits.
“Businesses are looking for financially healthy customers, and the finance departments — including AR — can help sales identify the right customers and prospects to target.”
Monitoring services are also trending higher into 2011, according to Cote. Businesses are leveraging the latest technology to determine “if today’s new customer will be tomorrow’s deadbeat.”
Cote says Cortera tracks 20 million U.S. businesses and provides daily e-mail alerts on liens, judgments, bankruptcies, news, and credit score changes that can potentially jeopardize or destroy a business relationship. The information is gathered from business accounts receivable, public records, and more than 7,000 news sources. It is sent as a service to companies hoping to track payments and ensure an uninterrupted flow of business.
This latest solution, known as Cortera PULSE, gives financial executives, business owners, and sales and marketing professionals the ability to monitor their entire customer portfolio and notifies them about clues that could affect a company’s ability to buy and pay for services on time.
“When you are not bringing on a whole lot of new customers, you’d better make sure you are getting paid by your existing customers,” he says. “Companies need to constantly watch their customer portfolio and be ready to pounce on opportunities and mitigate risks.”
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