AI in account receivables: a source of competitive advantage?

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AI in account receivables: a source of competitive advantage?

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While accounts receivable (AR) is typically the largest asset on most businesses financial statements, opportunities exist to manage it more effectively and generate higher profits.


AR processes were initially designed to keep the bill collection process as organized as possible, as B2B supply chains and payment terms have become more sophisticated, it has become increasingly difficult to manage AR effectively.


The consequences of ‘getting it wrong’ are growing – poor management of invoice to cash collection processes leads to overdue invoices piling up, which, in turn, leads to cash flow problems. As control over operating cash reduces, businesses need to rely more and more on expensive bank credit.


When credit is available this challenge can be managed but today the access to bank credit cannot be taken for granted. And let’s not forget that the time taken to turn AR into cash (days sales outstanding or DSO) is directly linked to the financial health of the business.


Organizations can reduce their DSO and optimize their receivables process by executing a number of strategies:


  1. Mandating payment terms across their supply chain.This strategy can only be attempted where there is a significant imbalance in power between the company and its suppliers, for example if a large retailer has a significant market share it can dictate payment terms to its suppliers.
  2. Turning the AR function into a core competency.This involves tuning the AR function using a combination of top professionals backed by exceptional processes and procedures.
  3. Leveraging the latest technologiesto ensure that all staff are supported with the combined expertise of the entire company.

While some companies may be in a position to execute strategy 1 above, most companies are part of other companies’ supply chains and hence cannot execute it. The ongoing war for talent means that relying on strategy two may not be a recipe for long-term success.


Technology can help


Clearly the first step to reducing DSO involves sending out invoices on time. Then making it easy to pay by providing many payment options, including cash, cheque and electronic. While much focus is placed on digital, the 2016 Electronic Payments Survey from AFP revealed that 44% of businesses still receive payments through cheque.


Not only do manual driven payment methods create time delays but they also increase costs and raises security concerns. In a recent survey, 71% of corporate respondents mentioned that they have experienced actual or attempted cheque fraud. Using an ERP or an E-Invoicing solution could help to streamline transaction processing and help manage DSOs better but it falls short of the organization’s overall objective of increasing straight-through processing and improving productivity. While these solutions do help automate a large part of the order to cash or procure to pay cycle, they don’t approach working capital management as a strategic discipline.


To ensure overall working capital optimization, corporate treasury teams need to automate their receivables process with artificial intelligence-driven solutions. This would include collecting timely dues from buyers, ensuring strong logistics management and building correspondent bank relationships for timely processing of receivables.


The solution used to automate the account receivables processes would ensure efficiency and productivity gains not only in terms of realizing collections and reducing DSOs but also in enhancing supplier and dealer relationships. Many of these benefits are typically attributed to non-AI powered solutions, so how can artificial intelligence help? For starters, it can enable higher collections by identifying when a corporate client needs to be prodded about an overdue invoice, highlight the most effective way they should be contacted — by phone, email or visit — and the payment method preferable to the client through analysis of their behavior data.


AI-powered solutions can also process large volumes of invoices quickly, thereby improving the swiftness of processing. Robotic process automation can help the organization automate the cash application process where remittance data is gathered through disparate sources, matching it with the invoice data and reconciling the resulting electronic payment with the corresponding customer account.


This blog has been republished from The Global Treasurer. To read more, click on the following link

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About the Author

Dinesh Verma, Head Product Management - Global Transaction Banking, Nucleus Software

Mr. Dinesh Verma heads Product Management and Domain Consulting function for the Global Transaction Banking solution from Nucleus Software. He brings with him over 18 years of experience in banking (retail & wholesale) and IT consulting in areas of Product Management (Core Banking, Transaction Banking & Internet Banking solutions), Domain Consulting, Banking Operations, Trade & Treasury.

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About Nucleus

At Nucleus Software we are committed to providing efficient, modern yet proven software solutions for the global Banking and Financial Service industry. We have been pioneers in developing Retail Banking Software, Corporate Banking Solutions, Transaction Banking, Cash Management and Internet Banking Software since 1986. Our success spreads across more than 50 countries, and we serve our customers globally through our direct and partner operations across US, Europe, Asia-Pacific, Africa and the Middle East. We are known for our world-class expertise and innovation in lending and transaction banking technology. Our two flagship products, built on the latest technology are: FinnOne™ and FinnAxia™.