According to studies, trillions of dollars are locked up in Accounts Receivable that could have been cleared earlier through intelligent automation.

Businesses are faced with varied operational challenges, but one constant is that cash remains critical.

Cash is the lifeblood of every business, and working capital is needed for operational imperatives such as paying suppliers on time and investing into revenue generation activities.

In recent times where cash has not as been as free flowing, the need for working capital is now more critical than ever. Businesses cannot afford to simply do nothing, but will have to prepare for the uncertain future ahead.

Yet, a recent PwC report found that there was €1.2tn (approximately US$1.3tn) of excess working capital tied up on global balance sheets. Why?

Rethinking Accounts Receivables

In the past, businesses have looked to optimize the three aspects of working capital via cost-cutting, inventory management and delaying the accounts payable process.

However, accounts receivable (AR), which is often the largest entry in the balance sheet, remains a largely untapped segment when it comes to optimizing working capital.

Clearly, there is value locked up in the AR process, and businesses may not be freeing up these funds for operations and future investments.

Businesses should therefore take on a strategic and value-driven approach to unlock the true value tied up within.

How to transform AR to working capital

While businesses typically increase their cash flow by increasing prices to improve margins, reducing overhead, and improving inventory control, they should also think about the money already owed to them by customers.

In large multinational corporations, this can translate to millions of dollars being ‘held hostage’ on the balance sheet.

Thankfully, many CFOs today recognize the need to harness emerging technologies such as intelligent AR automation and AI in order to unlock working capital.

More are leveraging intelligent automation to manage debtors and working capital to release cash flow. It is not just about deploying robotic process automation to eliminate manual tasks, but also reducing processing time and manual effort by layering machine learning to reduce the tasks at hand.

At the same time, it is also about unifying processes, rather than just integrating them.

We can think of integrated solutions as pieces of a puzzle. While the pieces may fit together perfectly, changing one piece of the puzzle produces no visible change to the remaining pieces. While integrated solutions may at times be part of the same cloud or infrastructure platform, they do not necessarily work hand in hand together.

For example, data in the Credit and Risk solution is unavailable in the Collections Management solution and vice versa. With the data in silos, it is not efficiently utilized from one solution to another and additional effort is required to integrate and reconcile the data.

On the contrary, a unified platform functions like a Rubik’s Cube. Moving one side of the puzzle impacts other parts simultaneously. Unified AR platform solutions provide real-time business intelligence for better decision-making amid the uncertainty of today’s business climate. It also creates more time for AR professionals to lean on their skills and expertise to drive business results. 

For example, such platforms will automatically update the user’s calendar and to-do lists when payment is received, while simultaneously removing any actions in the recovery sequences and collections management. This ensures that needless customer contact is eliminated, saving precious time and resources.

The payment is subsequently fed into assessment into a credit and risk management solution. At this point, all of the data is available and no longer in silos, which improves customer assessments and decisions-making.

A good starting point

The COVID-19 pandemic has changed the way business is conducted, and there is no return. Businesses will need to come to terms with this reality and put in place changes that will help them build resilience in the long-run.

Optimizing AR will be a good starting point, especially as maintaining cash flow and working capital becomes more important than ever.