Maintaining Positive Cash Flow with Digital Payments

“Digital transformation” isn’t just a buzzword. It’s a movement. Just how important is digital transformation? Sixty-six percent of organizations say digital has been “extremely” or “very” effective in advancing business strategy.1

Consumers have wholeheartedly embraced digitalization, with speed and convenience in purchasing, service, and communication as leading factors in adoption. In 2022, consumers were 10% more likely to use digital devices and apps to conduct routine activities than in the previous year.2

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). AP professionals think it’s just a matter of time. Sixty-six percent predict their departments will be fully automated in three years3, and eighty percent of publicly traded firms are in the transition process.4

The AR function is also moving toward digitalization. Fifty-seven percent of finance leaders plan to automate the AR function.5 The bottom-line benefits of digital transformation are real. For example, 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 ones. Automated solutions send and receive invoices digitally, scan data and route requests for action or approval. Users can configure the systems to pay invoices automatically upon approval and push relevant data to other integrated platforms with minimal manual intervention. The goal is to maximize efficiency through better resource allocation and time management. But even greater benefits include lower costs, positive cash flow and 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.”

Digitalization delivers tangible benefits.

Digitalization increases processing efficiency and lowers costs while improving relationships with customers and vendors. It also leads to more effective cash flow management, a key business growth and sustainability driver.

• Digital payments improve liquidity.

  Cash flow, collections and liquidity are all vital to a company's balance sheet. Inefficient AR processes lead to slower invoice collection, hindering cash flow for the 42% of businesses receiving late payments from 11-30% of their customers.7 However, 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. Forty-nine percent of companies with AR automation have lower delinquency rates.8
  
  In AP, inefficiencies can cause a business to miss out on prompt-pay benefits or lead to late fees. Ardent Partner’s “best-in-class” businesses, which include automated AP, can process invoices 76% 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. While the average costs to process an invoice can vary, companies that adopt automated invoice processing spend up to 80% less than those still relying on manual approaches.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 increase transparency and enhance reporting.

  CFOs and finance leaders need timely and accurate financial data to make sound business decisions. In a 2022 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 organize payment and transaction details in a secure, cloud-based repository, making it harder to access, compromise or destroy data.

Consider these strategies for improved cash flow.

Timely accounts receivable and accounts payable are critical to effectively managing cash flow and liquidity. These strategies can help.

1. Leverage available technology.

   Powerful accounting automation software programs are pivotal in supporting a successful digital transformation. Modern platforms can seamlessly integrate with existing accounting programs. Customized solutions can also communicate and aggregate data from legacy systems, creating a unified information source. As a result, your teams enjoy easier research, higher productivity and fewer data gaps. Choose a reputable partner and consider these factors when comparing vendors.
   • What is your typical processing volume, and can the program support that?
   • Is the software scalable to grow with your company?
   • What security standards does your industry require, and does the solution meet them?
   • What are the platform's integration capabilities, or can they create a customized solution?
   • Is the technology easy to use?
   • What payment methods does the software support?

2. Simplify customer payments.

   Clients are more likely to remit promptly when your invoices are timely, accurate and easy to pay. A recent survey revealed that 85% of B2B buyers will change suppliers if the vendor doesn't meet their digital experience expectations.12 Most individual consumers also prefer the convenience of numerous payment options.13
   
   Digitalization facilitates and organizes the process for both consumers and business customers, enabling your teams to manage receivables more efficiently.

3. Measure and adjust.

   Analytics and reporting are essential for assessing your AR/AP transformation efforts. The key performance indicators (KPIs) to track for AP include metrics like:
   • What is the processing cost per invoice?
   • How long is the average processing time?
   • What is the average invoice error rate?
   • A primary metric to monitor directly contributes to cash flow optimization — the percentage of invoices processed within the payment terms provided.
   
   There are also KPIs to gauge AR transformation success as well.
   
   
   • What is the turnover ratio? 
   • What is the rate of bad debt to sales?
   • What are the costs per collection? 
   • What is the collection effectiveness index?
   
   Regular monitoring and tracking enable you to spot patterns faster to leverage opportunities or make adjustments sooner.

Prioritize digital payments to improve your business cash flow.

Healthy cash flow, strong customer and vendor relationships, and easy access to financial data are vital for success. Digitalizing AR and AP for streamlined payments not only increases efficiency but also improves business cash flow. If you’d like to learn more, complete a short form and a Synovus Treasury & Payment Solutions Consultant will contact you with more details. You can also stop by one of our local branches.