Hackett Report Summary: Accounts Receivable Moves to the Top of the CFO Agenda

Executive Summary

Pandemic-related disruption and the start of a recession have intensified companies’ emphasis on liquidity management. In the early stage of the outbreak, 75% of finance organizations took steps to optimize working capital practices, and 79% report they intend to make these changes permanent post-crisis, as continuing economic pressures force companies to bolster cash flow.

As a result, CFOs are increasingly focused on automating the accounts receivable process in order to shorten the cash conversion cycle and track the health of the receivables portfolio.

Introduction

After a decade of cheap debt and abundant liquidity, the COVID-19 has squeezed cashflows. Looking to improve this, finance executives prioritizing efforts to secure their receivables portfolio and accelerate cash collection.

Because many companies have taken a lax approach to liquidity management, there are significant opportunities for harvesting already-available cash.

Using publicly available financial data for the top 1,000 U.S. companies, it was seen that they were sitting on $1.3 trillion in unused working capital at the end of 2019, including nearly $4 billion in accounts receivables.

To extract this additional value, A/R managers must improve critical elements of the process, such as credit risk management, collections, and payments.

Hackett’s Credit and Collections Performance Study (2019) found that customer-to-cash top performers hold a strong lead over typical organizations (i.e., the peer group) in most process metrics, some of which are mentioned below.

• 40% of top performers have automated their credit reviews increasing the completion rate for new credit reviews/li>
• 75% fewer billing mistakes with lower dispute-resolution expenses and higher customer satisfaction
• Average delinquent days (ADD) have reduced significantly to 0.6 days from 2.7 days

The coronavirus pandemic has exposed substantial deficits in finance’s digital platforms, making this an opportune time to push for new solutions within the context of liquidity enhancement.

The Covid-19 Response Poll (April 2020) found that, despite the recession, almost all finance organizations are powering ahead with digital transformation initiatives and some are even accelerating them. Even more encouraging, 64% are launching select new digital projects.

Hackett’s Recommendations for the CFOs-:

• Accounts receivable technology implementations should address immediate challenges as well as produce sustainable, long-term benefits, and to ensure this, organizations should establish a comprehensive set of process KPIs at the start of the project, align around them with technology partners and monitor them frequently
• Organizations should adopt a holistic approach to measuring the impact of their automation initiatives, by looking at efficiency, effectiveness and customer experience metrics
• The choice of the solution must be strategic and aligned with finance’s overall digital transformation roadmap, and must also integrate with other parts of the end-to-end cash cycle
• Accounts receivable executives need to consider both short- and long-term business benefits when making technology choices