“AR” You Ready to Ride Out a 2023 Recession?

Optimizing Accounts Receivable to Keep Cash Flowing

George Green | Tuesday, Dec 13th 2022
Is your accounts receivable ready to guide you through a recession?

The signs are everywhere: rising interest rates, continued supply chain disruptions, labor shortages and economic volatility. And they all point in the direction of the dreaded word that has every C-level executive on edge — recession. 

You don’t need to take our word for it. In a CNBC CFO survey, 68% said they believed a recession will occur in the first half of 2023. None of the CFOs surveyed forecasted a recession any later than the second half of next year and none believed that the economy will avoid a recession altogether. 

So, what impact might this have? Looking back at the United States’ Great Recession between 2007-2009 leads to worrying insights. Many organizations couldn’t make payments and bankruptcy filings rose to 74%. Entrepreneurship was also badly affected, with the number of small businesses shrinking by 35%. Today, small businesses represent 99.99% of all firms, which means a similar decline would significantly impact the economy’s money supply

In 2023, businesses will need solid cash accounts behind them so that they are financially able to ride out economic challenges. Moreover, with interest rates rising, firms will want to draw on their own cash reserves wherever possible, so they’re not forced to borrow funds at an inflated cost. 

Of course, you know what this points to. An increased focus on cash means an increased focus on accounts receivable. Your company needs to optimize this process to stay on top of outstanding payments and maintain a steady and reliable flow of funds into the business. 

AR Pitfalls That Prevent Cash From Flowing

There’s no doubt that this is easier said than done. Late payments are one of the most significant challenges that organizations face, with 93% of businesses stating that they currently suffer from them. And it’s a fundamental issue that our customers ask us to help them with. From our experience, we've identified three AR pitfalls that increase the likelihood of customers paying late. 

1. Generic Communications

A recent PYMNTS’ study found that 67% of B2B buyers have switched to vendors with more consumer-like experiences. By getting to know what your customers want, as well as their habits, you’ll be able to build a service that truly makes them feel valued. And guess what? If they feel valued, they’re more likely to stick to payment terms. 

When it comes to collections, creating a personalized approach can feel impossible to achieve. As an AR professional, you’re burdened with the task of contacting a large volume of customers each week. And generic communication is often the best you can muster. However, that’s not to say it isn’t worth making small tweaks if you don’t currently have the time or resources to overhaul your strategy. Right now, are you shaping your messaging based on the recipient? For example, an accounts payable manager will want to receive billing information regularly so that they can stay on top of payments. Whereas a CFO requires less frequent communication and is likely more interested in receiving business updates and market information.

If you’re sending out catch-all communications and feeling frustrated that customers aren’t responding, then the onus is on you to make changes. If you don’t have the capacity to apply a personalized approach to your entire customer base, it’s worth identifying priority customers — whether that means those that are unresponsive or those that owe the highest dollar amount — and trying a different tack with them. You’ll be surprised how much more successful your collections efforts are. Of course, if this proves too difficult among your myriad other priorities, an AR automation solution will help (we'll explain how). 

2. Inconsistent Efforts

And what about contacting customers late for payment? 

You may think that customers would be happy when you’re not chasing them for money. However, slow follow-ups can signal that their business is being neglected. And giving them this impression will not get you paid quickly. 

PWC identifies speed and consistency as key ingredients for a great customer experience. The truth is people enjoy a systematic approach. They like knowing what to expect and they become reliant on reminders and updates. 

Perhaps you're already burdened with too many other responsibilities to ensure that your collections communications are going out on time, every time? Like growing your personalization efforts, a good starting point is to target a small audience of priority customers who you then make sure to follow up with on time. This will provide insight into how transformative consistent follow-ups can be to your collections success. It will also help you to build a nice business case for automating your collections process so that you can do this with your entire portfolio. 

3. Painful Payments

Even if you are contacting customers on time and providing a personalized service, these efforts will be undermined if your payment process isn’t optimized. 

If your customers need to spend time on the phone with your team asking about copies of invoices or balance updates, your payments will be delayed. If they are required to dig through emails for account information, they’re likely to get sidetracked and move on to something else. And if you expect them to travel to the post office to send a check, you’re making it even harder. Believe it or not, 25% of B2B transactions are still processed via this method. 

Look for solutions that not only reduce how much time your team needs to interact with customers to send or clarify information. They should also empower customers to manage their accounts as independently as possible. This is better for your customers and better for your cash flow. 

Recession-Ready Capabilities Every AR Team Needs

We’ve outlined three common problems for AR teams today and touched on ways to address them. Let’s dive into the solution that has been functionally designed to address these challenges and determine what recession-ready AR management looks like. 

The solution we’re referring to is AR automation. The global AR automation market is booming due to the need for speedy invoicing and payments — a demand that many businesses failed to meet during the COVID-19 pandemic. Today, organizations are investing in their finance function to better adapt to the current economic uncertainty, as well as a looming recession. In fact, a report from this year found that the AR automation market is set to double in the next five years, from USD 3.3 billion in 2022 to USD 6.5 billion by 2027.   

Quadient AR automation offers extensive benefits, covering the gamut of AR from credit management to cash application. To avoid an exhaustive list, here are five key capabilities that address the challenges we’ve mentioned. 

  1. Real-time dashboarding. Centralize real-time data from all your systems — including ERP, CRM and billing — to ensure you work as accurately and efficiently as possible. 

  1. Automated and tailored invoice delivery. Automate delivery of invoices and never worry whether you’ve contacted that priority customer on time. Tailored options enable you to choose the method that works for them, whether that’s digital or physical mail. 

  1. Customizable follow-up communications. The perfect addition to intelligent invoice delivery. Ensure automatic and tailored reminders are sent on a cadence of your choice, until payment is received. 

  1. Customer self-service portal. Provide customers with a flexible, B2C-esque payment process and offer a variety of channels and currencies to suit their needs. 

  1. Smart dispute resolution. Even with these capabilities, disputes can and will happen. With Quadient AR, customers can raise disputes through an online portal. These are automatically routed to the appropriate employee, helping expedite resolution. 

Ride Out the 2023 Recession

As an AR professional, you're set to play an even more critical role in the success of your organization. Cash is undoubtedly king in today’s market, and as the gatekeeper to that cash, you had better make sure it’s flowing thick and fast. 

Riding out a 2023 recession means getting cash into your business quickly, reliably and repeatedly. And if you’re hoping to achieve this with traditional methods in an economy that is as unforgiving as it is unpredictable, you’re facing an uphill battle. 

Quadient AR helps customers get paid 34% faster and work 3X more efficiently (on average). That is why we’re confident that our customers will thrive, and not just survive through a 2023 recession. 

If you want to see how our solution can help your business, contact us today. Your cash flow and your customers will thank you.  

 

👉 https://www.quadient.com/en/ar-automation/request-demo 👈