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AICM Article

Publish date Oct 21, 2019

Let’s face it, we live in a cost-cutting climate, with most executives holding a strict mandate to plug the drain of unnecessary expenses in their businesses. When on a cost reduction rampage, an obvious place to first take aim at is the countless hours wasted by businesses chasing unpaid invoices. A recent Financial Review survey revealed that Australian businesses hold a staggering $115 billion of unpaid invoices and spend over 18 million hours a year chasing debtors*. It couldn’t be clearer that in this environment of reduced margins, stricter lending conditions, automation of the accounts receivable process is a sure way to free up working capital and streamline payments.

The extent of the capital wastage riddling business balance sheets in the form of unpaid invoices is frightening. Moreover, when simple and effective automation tools exist to optimize the accounts receivable process, the drain of outstanding debtors screams even louder. Even more concerning is that these costs to business are not always accounted for. They may be fleetingly considered in business planning on an intuitive level, yet in most instances they are simply ignored. To ignore debtors beyond 60 days is worrying, but when that number creeps to 90, or worse still 120, dire consequences can befall businesses.

For a business to leave growth opportunities on the table in any economic context is a confounding proposition. Yet in this era of near zero interest rates, where growth is a coveted novelty, a failure to have payment delivered for services already rendered is a maddening thought. Businesses have already earned this income; the contract has been won but payment is delayed for various reasons. This missing, hard earned cash could be invested in new equipment, R&D or even used to pay off a business’s own debt.

Of course, to have an “accounts receivable” process is not a revolutionary notion. As such, it is not in the documentation of unpaid invoices that businesses fall by the wayside, but rather in enforcement. A robust means of collection of unpaid invoices is paramount in ensuring timely payment. Businesses who fail to actively collect what they are owed are essentially providing their debtors with free finance.

The solution to this “free finance” trap lies in automation. Automation systems exist whereby businesses can trigger the distribution of payment reminders before an invoice is due and then every 7 days until it becomes paid, queried or sent to a recovery agency. Automation is key to businesses saving precious resources and man hours. With simply the touch of a button, a business can send out thousands of invoices via SMS or email, and check when the invoice is opened, actioned, queried or paid.

The ingenuity of an automated system doesn’t end with the efficiency it provides, transparency is yet another deliverable that is offered. Without doubt, the collection from debtors is a process packed with potential regulation breaches. Automation mitigates such risks with a wholly transparent audit trail, and that’s not to mention the immediate availability of reports and analytics.

Technology lies at the heart of plugging the hole unpaid accounts leave in businesses’ profit margins. In utilising automation, businesses can save time, money and resources. This capability gives businesses the much-needed opportunity to redirect their resources toward what is most crucial for longevity - that being growth and development. Surprisingly this automation is not expensive, it is very easy to use, links seamlessly to existing software and can be implemented in around 30 days!

With Credit Managers being asked to do more with less, automation maybe the answer you have been looking for.

An illustration of automation.
 

Manual System

With Automation

Number of invoices

5,000

5,000

Average time to follow up 1 invoice

5 minutes

n/a

Total follow up time

416 hours

1-hour max

 

If you are interested in learning more about automation, please give Damian Arena at call at IODM on 0419 106 176.

*Financial Review Survey 24/6/19