Don’t Fear! Manage the Shift from Paper to Electronic Accounts Receivable

Introduction

Despite the new advances in technology, many organizations continue to leverage paper-based Accounts Receivable processes. These processes are not only expensive but availability and visibility to cash are delayed and insight into credit exposure is almost non-existent. Even though companies that choose to implement Accounts Receivable software can realize very real process efficiency and working capital benefits, as well as an increased competitive advantage, many organizations continue to resist the change.

Remaining in the status quo paper world is “the path of least resistance”. It’s the way things “have always been done” – and it doesn’t create any “disruption” or “discontent” within the organization. As a result, organizations have accepted the costs associated with a manual process as a necessary expense. These expenses are considered to be just “a cost of doing business” which must be absorbed within the operational budget. The time delay in completing the transaction cycle in the paper environment has also been accepted as a normal limitation of managing the Accounts Receivable portfolio. Staying in the status quo is so easy that companies are fooled into not realizing they are actually falling behind competitors even as they let dollars slip through their fingers.

Never mind that the activities performed by Accounts Receivable – cash reconciliation, remittance processing, credit and collections management – are the most expensive component of the financial supply chain and offer the most opportunity for cost savings (See Exhibit A). AND, that the process of reconciling cash can take two to four days to complete.

This time delay is where real dollars are lost. Delaying cash receipts during this extended window results in a very real negative impact on days sales outstanding (DSO) and significantly reduces access to working capital.

Exhibit A

Let’s contrast the paper-based Accounts Receivable world with an environment that utilizes a Receivables Management Software.

Receivables Management Solutions allow data capture – one of the most time-intensive and error-prone components of the process – to be automated, reducing the workload of the A/R team. Availability of an intelligently prioritized worklist that streamlines the associates’ activities removes the strain on an often over-worked staff – enabling A/R teams to refocus on higher value-added activities. Additionally, Receivables Management Systems provide greater visibility into overall customer payment history, credit risk and exposure, and cash inflows and outflows. In today’s environment, this visibility is deemed as important by senior executives as priority cash acceleration – the primary benefit brought about through automation.

Considering the operational advantages achieved through automation, it’s clear that to remain competitive organizations have to shift to electronic Accounts Receivable. (Refer to “Is Accounts Receivable Transformation a “Nice to Have” or a Necessity?) Yet, transformation is occurring at what seems to be a “snail’s pace”. Why?

One simple word:

“Fear.”

Receivables Management Systems enable the entire receivables workstream to be automated, but that potentially requires a total Accounts Receivable transformation, which is a scary proposition for most organizations.

What is the fear? Accounts receivable processes are the lifeblood of the company. Is it worth the risk of jeopardizing cash flow to put some new technology in place that is probably not going to deliver what it promises anyway? Not to mention the fact that introducing a new approach may result in the team getting frustrated, perhaps even driving some to leave, and productivity to plummet.

This is a very real account of what many organizations (perhaps your organization) fear, whether it is verbalized or not. And unfortunately, those concerns are not unfounded. The Executive Center of Excellence sites multiple sources that conclude that 70% of all company change initiatives fail. The primary reason for the failure is not the technology but the lack of change management.

Many companies view change management as something you “do to” an organization. When in fact, if you engage the associates in defining the change, not only is a better result achieved, but an exponentially greater result is achieved.

So how do you manage the shift from paper to electronic accounts receivable?

First, leverage a well-defined process that enables you to select the “right” Receivables Management Software technology, provider. Then, to avoid the pitfalls that many organizations have encountered and avoid becoming another “statistic”, engage in a comprehensive change leadership initiative.

Transformation efforts are only effective when the investment in the human infrastructure is balanced with the focus on the technology infrastructure. Strategic-minded companies that have capitalized on this comprehensive approach optimize both their technology investments and their achievement of key business imperatives.
As we continue this series, we will start to review the steps necessary for accomplishing both.

Has your company considered making the shift? If so, what is their greatest concern?