Embracing technology and enhancing cash flow

Anthony Coo | Wednesday, Jul 14th 2021
business financial indicator and the stock market investment growth in a bar chart growing on a visual touch screen

Amongst many things, the past year has taught us that payment projections and cash flow forecasting is essential for organisations wanting to maintain a steady cash flow. Long term negative cash flow can put growth plans on hold as business owners are often left worrying about staying on top of finances each month, rather than investing time into thriving. Despite AR automation platforms being available to enhance businesses financial processes, research by QuickBooks revealed that 71 percent of small business owners have lost sleep worrying about the cash flow of their business.

To generate additional revenue, it helps to have an additional supply of cash. Any business owner will understand that it is challenging to predict when additional spending will need to be made. Therefore, it is important to consider production costs, supply and demand fluctuations and market price of goods and services, to better understand the financial health of the business.

The benefits of financial technology

A financial forecast is ultimately an estimate of financial outcomes for a company or project, usually applied in budgeting. By having broad oversight of this, businesses can keep track of their company's current economic status and where it is heading. Allowing them to make more intelligent decisions for the organisation. Additionally, they can set strategic goals and objectives along with expectation management, with the necessary expenses needed for long-term business success. Another benefit is the ability to perform market analysis against the competition and track any areas of competitive edge and improvement.

Automation in the finance department

To achieve these benefits, one solution is an automated accounts receivable (AR) platform. AR platforms use a variety of intelligent machine learning algorithms to understand the payment behaviours of customers. In turn, this provides the business with the most accurate prediction on when each individual invoice is going to be paid.

So, what exactly are machine learning algorithms? An AR platform has two separate models that use the same input data but have different architectures and approaches. This model looks at current invoices and is designed to predict if an invoice is going to be paid before the due date. The resulting prediction of this algorithm is a probability of the invoice being paid in time. This algorithm is used for overdue invoices only and is designed to predict which bucket this invoice is going to end up in.

When an AR platform integrates with an existing enterprise resource planning system, it pulls historical documents from previous years, including paid invoices, old payments, and credit memos. This data is at the core of the payment prediction algorithm and is then used to create a customer profile that is based on behavioural patterns of customers. These include average payment time, credit limit and average number of days overdue.

Leveraging AR platforms which maintain a regular pulse on cash flow is essential for businesses looking to grow. Automation in accounting and finance gives business owners the chance to respond to any short-term payment issues and, in turn, deliver long-term cash sustainability. Having a holistic view of the receivables within a business will better position owners for greater financial health and an enhanced customer experience.

To find out more information about accounts payable automation software, take a look at YayPay by Quadient, an automated AR management platform.