The cost of doing business shows no signs of decreasing, especially when it comes to labor costs. According to a report issued by the U.S. Bureau of Labor Statistics, unit labor costs — the average cost of labor per unit produced — have shown a steady increase, rising, “2.4 percent over the last four quarters.”
This is particularly being felt in the Business Services industry, a traditionally labor-intensive sector. The issue is compounded by projections from groups like the International Monetary Fund, which predicts that growth in 2024 will drop to 2.8%, a slight decrease from the 3.5% seen in 2022. That means that, while labor is becoming more expensive, the economy is still faltering.
Each of these factors highlights the need for organizations to increase productivity without adding head count.
How manual accounts receivable drives up labor cost
For finance teams, a reliance on manual AR practices can result in increased labor costs. The process of sending out invoices, follow-up communications, and maintaining detailed records, is time-consuming, which translates into administrative expenses. When payments are late, this work increases as team members must engage in the dunning process to help get accounts current.
At the same time, the later an invoice becomes the less likely an organization is to collect its full value. That means that as your costs are increasing to handle mounting late payments, you’re collecting less money.
Rather than increasing headcount, many teams will outsource their collections process to a third-party agency. However, this typically involves a significant reduction in the amount that will be collected. In fact, Dun & Bradstreet estimates that the use of a collection agency comes at a cost of 25%-45% of the total amount owed.
This combination of increasing labor costs and lost profits due to late payments creates an incredible strain on cash flow.
How to increase productivity without adding headcount
Advancements in technology now allow much of the administrative work required for accounts receivable to be automated, granting the accounts receivable team the time needed to strategically approach collections.
- Let AI help with customer communications – With the rise of generative AI, AR teams can now build out their email and communication templates quickly, creating personalized and contextually relevant messages for customers.
- Automate communications and follow-ups – In addition to time wasted creating communications, AR teams are often swamped by managing communications and follow-ups. An AR automation solution provides customizable workflows so that invoices, follow-ups, and escalations are sent to the appropriate customer contact on a set schedule until the invoice is paid.
- Use predictive analytics to optimize collection strategies - AI and machine learning have revolutionized the field of predictive analytics, reducing the amount of work required to create accurate projections. In accounts receivable, this has taken the form of analyzing customer payment behavior to make predictions about when invoices are likely to be paid. Using two distinct algorithms, AI is able to determine which invoices are likely to be paid late, and when payment is likely to be made. With up to 94% accuracy, this allows AR teams to take a proactive approach to collecting, getting ahead of potential problem accounts early to reduce the likelihood of late payments. Not only does this technology reduce the work needed to make accurate projections; it helps focus collection strategy in a way that will optimize cash flow.
- Embrace a customer self-service portal – One of the simplest ways to reduce the workload for an AR team is to provide a self-service portal that allows customers to make payments and access key account details, such as open invoices and payment history. With the AR team freed up from taking calls to answer basic account questions or process payments, they can focus instead on working with high-value and high-risk accounts. In addition, the convenience of self-service reduces the likelihood of late payments, increasing cash flow and reducing strain on AR.
- Select an AR software with built-in integrations – Another common time waster in the accounts receivable process occurs when an organization's accounts receivable software does not integrate with the rest of its tech stack. Without the ability to communicate with solutions such as CRM and ERP, time is spent navigating between disparate systems and manually transferring data. Not only is this time-consuming, but prone to errors that then must be fixed, adding yet another task to an already overwhelmed team. By selecting AR software with built-in integrations, AR teams can work from a centralized platform that includes all relevant data from the rest of your tech stack. For example, Quadient AR solution can easily integrate with many ERPs, including Microsoft Dynamics 365 (NAV) ERP or Microsoft Dynamics GP, to centralize your data.
Each of these five practices helps Business Services organizations maximize performance and efficiency without resorting to outsourcing or adding headcount.
“With Quadient AR, it’s like we have another person on our team! The platform has helped improve efficiencies, which has been key to reducing our DSO…Employees know exactly what to focus on and we have complete visibility into the effectiveness of our collections.” – Ryan Madden, Senior Director of Financial Operations, OneSpan
To explore more ways to get the most out of your accounts receivable team without adding headcount, watch our on-demand webinar From manual to magical: How to turn yourself into an AR magician with AI.
