Free Cash Flow with AP-AR Transformation

“Digital transformation” isn’t just a buzzword. It’s a movement. By 2023, 75% of companies are expected to have comprehensive digital implementation roadmaps in place.1

Just how important is digital transformation? Seventy-five percent of business leaders say digital capabilities helped them “cope with the challenges triggered by the pandemic.”2

Consumers wholeheartedly embraced digitalization, with speed and convenience in purchasing, service, and communication being leading factors in adoption. Aided by the pandemic, consumer digital usage grew 20% in multiple industries across the U.S. and Europe from October 2020 through April 2021.3

But it isn't enough to digitalize customer-facing business elements. Companies should also integrate back-office functions for greater connectivity throughout the organization, including accounts payable (AP) and accounts receivable (AR). Sixty-nine percent of AP professionals would like “smarter systems that drive more efficiencies,” and 38% would like “enhanced collaboration with key stakeholders.”4

The AR function is also moving toward digitalization, with 26% of small companies and 33% of the largest companies planning to make the shift to automation. The bottom-line benefits of digital transformation are real.5 After modernizing its ERP platform, a chemical manufacturer was able to invest the savings into automating its front-and back-office operations.6

Digitalizing AP and AR entails switching the functions from manual processes (e.g., physically moving paper invoices around, mailing checks or sending emails) to automated. Invoices are sent and received digitally, data is automatically scanned, and related requests and inquiries are routed for approval or appropriately credited within the automated solution. Approved payments are automatically scheduled and sent, and details are reconciled and recorded in the ledger without human intervention. The goal is to eliminate or minimize the use of paper and human resources to maximize efficiency. But an even greater benefit is lowered costs, improved liquidity, and stronger financial reporting.

“To drive maximum benefit, AP must move from checks to electronic payments. Whether a company processes 500, 1,000 or 10,000+ payments a month, there are significant efficiencies gained when check payments are reduced,” says Laura McGortey, Synovus commercial payments and fraud mitigation product group manager. "Often accounting and ERP systems limit AP organizations’ ability to create electronic payments or store payee banking information; however, there are very good options to mitigate these challenges."

AP and AR digitalization frees cash flow.

Cash flow, collections and liquidity are all vital to a company's balance sheet. However, almost 14 - 16% of B2B invoices are past due, tying up critical cash flow.7 Companies with manual, paper-based AR days sales outstanding (DSO) averages are 30% longer.8 AR automation enables receiving organizations to recoup outstanding revenue more quickly and can go a long way toward shoring up finances and providing much needed working capital.

Businesses with automated AP can process invoices 74% faster than those without.9 Faster invoice processing offers several benefits to the paying organization, such as the ability to take advantage of early-pay discounts, supply chain financing, timely booking of obligations, and more accurate cash flow forecasting.

Automated processing reduces costs.

Automated invoice processing has an undeniable bottom-line effect. Manual invoice processing costs almost $13, compared with just $2.56 for companies with automated processing. So, these companies’ processing costs are 80% lower.10

Vendor relationships suffer when payments are late or slow, and companies risk being charged late fees. Automated processing makes it easier to pay bills in a timely manner. Expedited payments can help foster better relationships with suppliers and vendors, which strengthens a company's position to receive discounts or negotiate more favorable credit or payment terms.

Digitalized AP and AR increases transparency and enhances reporting.

CFOs and finance leaders need timely and accurate financial data to make sound business decisions. In a summer 2020 survey, 48% said improving reporting and analytics is a top priority.11 Automated AP and AR processes are capable of automatically updating accounting records for valuable point-in-time reporting. For example, decision-makers can quickly see which invoices are outstanding, what the company spends with each supplier, and when payments are expected, which is beneficial to financial planning efforts.

“Timely receivables application can be a tremendous challenge for many organizations, especially as their customers have increased their desire for flexible and diversified payment methods. Now, businesses are expected to accept and process multiple payment types, including cash, check, card, wire and ACH. And that list is growing.” says Tracy Rudolph, Synovus cash services and integrated receivables product group manager. "Digitalizing acceptance, reporting and reconciliation of these payment types is key to reducing manual processing, error rates, delayed payment application and rework. Digitalization also increases the amount of usable data available to the business, including payment preferences, and increases predictability for better cash forecasting.”

Anyone who’s ever had a front-row seat to an audit or researched payment details knows the importance of accurate record keeping. Automated AP and AR solutions digitally organizes payment and transaction details in a secure, cloud-based repository, making it harder to access, compromise or destroy data.

Healthy cash flow, strong customer and vendor relationships, and easy access to financial data are critical to a company’s success. Digitalizing AR and AP not only improves efficiency but offers tangible financial benefits as well.

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