2020 was almost a watershed moment for businesses. The business challenges were unforeseen. The usual business models and ways of working went for a toss. Most of the businesses were impacted – some more than the others. Large, mid-sized, or even small – all of them saw both saw a revenue shock and also a supply shock.
But mostly 2020 – the pandemic and the recession – also made worse the ‘weak links’ of businesses. IF the strength of a process is as good as its weakest link, then businesses started realizing these areas of improvement. If cashflow was the lifeblood of a business before, it became very oxygen now. This was also the area that could mean the difference between growth and closing down!
Occam’s Razor: The ‘simplest’ weak link that was hidden in plain sight
Small and mid-sized businesses do face process issues. Solve for speed and whatnot. At the same time, all the large businesses of today started small, faced all the challenges, did somethings right, and were able to sustain and scale. The risk at the beginning is far far higher than later. And as I mentioned before, Cashflows or Finances of the business became the lynchpin of success.
And this is where lies that weakest link. Hidden in the finances and the cashflows. One of them, a big fat one, was – and is – Receivables and Collections. Unpaid invoices. That becomes due and impact the working capital directly. This has been one of the ‘hidden’ weak links that businesses have had forever. To the small and mid-sized corporates, in particular, this one comes back to bite at the wrongest of times!
Most of these challenges are not exactly ‘pandemic’ borne. They have been there for a while. But since there was some action or the other being taken to address these, AR remained a hidden problem. The challenges remained.
Lots of effort in just figuring out where the receivables are and why they seem stuck. Client disputes arising at the last moment. Too many payment follow-ups. Letting go of smaller payments because they are just not ‘worth it’. Managing last-minute discounts to free up cash. Manual collections.
Consequence : Delayed payments. Heartburn. Chaotic month-ends. And an adverse pressure on Growth.
Some experts have also quantified some of these ‘losses’. According to PYMNTS, even at ‘normal’ times, manual handling of Accounts Receivable (yes, even with an ERP) can shave off up to 1-3% of your revenues, because of direct and indirect collection costs.
"Receivables? It's all covered. No worries!"
The usual response. Or the usual denial. Ironically they might even be the right impressions. Till you figure out or are forced to contend with the cost of the status quo.
“When it comes to collections, our ERP takes of everything that needs to be taken care of”. True, except that might be quite far from reality. Your ERP can be used to manage collections, but it is not created specifically for it. Hence will surely need some boost.
“All we need is a team that can manage this. Maybe hire a few more. And we are set”. Partially true if at all. The complexities of business need the teams to be equipped not retroactively but proactively. How to get things done despite everything, needs some tools they can rely on.
“We can’t make our clients pay faster. So can improve our AR since we don’t control what we cant”. This is one perception that needs to be killed. Fast. 65-75% of the reasons that cause the AR process to be inefficient are caused by your internal processes – something that businesses can control. The rest can be influenced, if not controlled completely. Combined, it means that there is a lot you can do to shake up all things AR!
“There is not much we can do except for some automation”. AR/Collections means getting paid against your invoices. There are things that might influence this process. What if you could create incentives for the clients to pay you early? What if your clients can avail of financing to pay you on time? Or what if you were to create a loyalty program that rewarded good payment behavior? There are many things beyond just managing the process that can help.
Net-net. No there is a lot that can be done to the age-old problem of collections. And it need not cost an arm and a leg!
The way out? An open mind.
The legacy of 2020. Be open to possibilities. It’s not any different when it comes to AR too. This is especially true when Growth is a key metric going forward. It always was, but now it is more urgent than ever. You would agree that growth puts immense pressure on Receivables – leading to increased outstanding, client default risk, disputes and inefficient coverage by Sales and Finance teams. The times of downturn (forced on us by the pandemic), further aggravate these problems.
What is needed is an open mind : to acknowledge the challenge, to relook at the existing stuff being done and evaluate solutions that might help solve the problem. Like a need to improve the Collections. And a need to evaluate some solution like numberz!
Proof of the pudding?
Our clients. No one else. Many of our clients (both small and large corporates) like Treebo Hotels, Capillary Technologies, S Chand and Co, Deccan Herald, Konica Minolta India, Blue Dart India, HT Media and others have been able to get more control and visibility of the entire AR process – by evaluating and then implementing the solution that can complement their existing people, process and technology. Ultimately positively impacting the receivables and the cashflows. Here is more about what they have been able to achieve specifically.
But broadly, this is now an AR solution like numberz can help.