Accounting

From Checkers to Chess: Thinking Strategically about AR

The chief area that organizations need to assess and most likely can improve is accounts receivable.

Accounts receivable, or AR, has historically been too often overlooked by company executives when examining ways to create more efficient processes and ultimately accelerate cash flow. For the most part, the goal with AR is to get the job done with the resources at hand, and reexamining a traditional process that works might be considered too time consuming or expensive. However, just getting the job done does not mean it’s getting the job done well.

It makes one think of playing checkers, a simple game that is mostly tactical in nature and doesn’t change much from game to game. There are limited moves, it’s very reactive and each piece is essentially the same. Overall, there is not much strategy involved in winning.

Alternatively, the game of chess is much more strategic. Each piece has a different role to play on the board with different moves to be made. If the player wants to be successful, they must plan many moves ahead and sometimes sacrifice key pieces in order to have a chance at winning. It takes an intellectual, proactive approach to win.

In the word of AR, what do you win by taking a strategic approach? You win the health of your business: a predictable cash flow to grow business and invest in innovation, more cost-effective processes that save time and money, happier customers loyal to your brand and more efficient employees focused on more impactful projects.

So, if the ultimate goal is to win, then it’s time to take your AR department from checkers to chess.

Strategic moves in business

In business, like chess, you have to be able to see past your current situation and think multiple steps ahead in order to be successful. Making shortsighted decisions based only on your current situation can be costly, and organizations need to shift their focus from tactical responses to strategic solutions. This is especially true when it comes to their accounting departments.

One of the basic aspects of chess is sacrificing one or more of your pieces during the course of the game.  Understanding this separates the experts from the amateurs.

While a big part of strategic planning involves identifying places to increase efficiencies across all departments, it also includes identifying areas that are proving to be inefficient. There may be some ways of working that can simply become more efficient if given a formal process. On the other hand, there may be some processes that are already established but are proving to be less productive in their outcomes. Being willing to eliminate established yet inefficient processes will give organizations an advantage.

Changing the way you think about accounts receivable

The chief area that organizations need to assess and most likely can improve is AR. AR processes are often not recognized for having a direct impact on cash flow, but the seamless efficiency of these “back office tasks” are actually critical to business health. CFOs must take the time to evaluate their AR department’s processes and find its efficiencies and inefficiencies. While the overall business goals may not change, the strategies used to reach those goals can be redefined to improve efficiencies.

Traditionally, AR has relied on manual processes and lagged behind accounts payable (AP) in terms of its technological advancements. But that doesn’t have to be the case anymore.

There are huge strides being made in AR technology. And with that technology comes speed and flexibility, because customers now can (and will) change their minds on how they want to interact with a business on a daily basis. Changes in customer expectations — what they believe they should and shouldn’t be able to do when it comes to processing invoices and payments for their own businesses — are driving significant changes in behavior to which AR teams must respond.

From the way customers number their invoices to the way they submit payments, AR needs to support their changing demands and still quickly turn invoices into cash. Upgrading AR technology will give customers flexibility, all while streamlining internal invoice-to-cash processes. And by doing so, AR teams will effectively be able to lower costs while efficiently using resources and maintaining a steady cash flow for the organization.

Automation is key

So, how can an organization move to a more efficient, digital process? Automating traditionally manual processes is definitely a key strategy. CFOs should look for automated solutions that will seamlessly integrate into existing technologies, like their ERP systems, to digitize and automate the invoice-to-cash process. Invoice delivery, to payments, to cash application — all in one, integrated system.

By implementing these types of upgrades, CFOs can free up time for AR managers in the long run so they focus on more important work like chasing down collections or implementing other strategic initiatives to help increase cash flow.

With automation, you may be sacrificing a tried-and-true process, but it’s also one that is lacking efficiency. It’s critical for CFOs to look at AR from a strategic standpoint rather than a tactical one, in order to lead to greater efficiency and ultimately better cash flow.

Ed Jordan is the Chief Financial Officer at Billtrust.