The State of AR Automation

Despite the hype, automation has not yet become standard practice in a majority of credit and AR operations. Much of this failure is attributable to the limitations of the AR modules incorporated in ERP or accounting software. Such systems have a transactional accounting focus and so tend not to address in sufficient depth the credit and collection challenges associated with the order-to-cash process. The inadequacy of most AR processes is particularly apparent with Sarbanes-Oxley’s call for greater process integrity and accurate reporting.

Within this environment, problems created during the fulfillment process have a nasty habit of clogging the cash settlement process. As a result, credit departments spend more time sorting out administrative issues related to the O2C process, than handling risk related matters. When discrepancies are addressed before they can become a settlement issue, there is no transactional friction delaying payment and consequently fewer items for collectors to address.   Since the primary challenge for corporate finance remains reducing Days Sales Outstanding (DSO) and risk with the same or a smaller staff, this administrative burden can be crushing. Without automation tools, there is simply no way to sufficiently increase productivity to both reduce overhead and improve performance at the same time. Most of the time devoted to credit and collections turns out to be administrative in nature as opposed to involving risk mitigation. Instead, manual tasks, responding to customer service requests and account reconciliations take up the majority of the time allocated for credit and collections.   As a consequence, a growing set of credit, collection, dispute and settlement management automation tools have emerged, dramatically reversing the fortunes of the corporate credit department in their never ending struggle to efficiently manage the corporate receivables portfolio. This report covers a cross section of the RCM vendor universe. Other established solution providers including SunGard and Cforia are not covered in this report, but can be found in PayStream’s previous RCM reports. Now, with the evolution of Cloud technology combined with the fact that Fortune 1000 companies have largely implemented ERP systems (primarily SAP and Oracle); innovative RCM vendors have emerged with products that benefit small and midsize companies as well as solutions that enhance the ERP platform preferred by IT departments at large companies. The good news is that in any case RCM automation drives down long-term transaction costs with commensurate improvements in productivity.   As you can see in Figure 1, other than the use of credit scoring technologies, remittance processing, in the form of remote deposit capture (RDC) and auto-cash, has attracted the most investment in automation. All the other areas of receivables automation have been adopted by less than one-third of organizations.   Until recently, AR automation has garnered the most traction at larger organizations. Automation is more easily justified with a large customer base or when transaction volumes are high. It is therefore not surprising that credit scoring and remittance   FIGURE 1: RECEIVABLES AUTOMATION TECHNOLOGY ADOPTION RATES     processing have relatively higher levels of adoption than other automation tools due to the impact of scale on the value equation. With the advent of Software-as-a-Service (SaaS) and Cloud computing, scale has become less of an issue thereby allowing smaller organizations to justify automation.   In these challenging economic times, there is also the imperative of doing more with less, and this affects organizations of all sizes. AR automation is a clear means to this end for organizations of virtually any size. Moreover, the growing concerns of the credit profession (see Figure 2) can all be mitigated with AR automation tools.   The productivity gains generated by automating AR activities have a direct and positive impact on AR performance. Processing solutions that take advantage of workflow, document management, and analytical technologies to eliminate paper, reduce costs and drive better efficiency in a wholly integrated O2C process are key drivers of improved AR performance.   FIGURE 2: INCREASING CONCERNS FOR 2012