Unlocking working capital: How Managed AR pays for itself
Financial leaders are under a lot of pressure at the moment. Supply chain issues, recruitment during a skills shortage, and maintaining a competitive edge through prudent technological investment are all making judgment calls difficult, especially when it comes to cash flow. The situation is not helped by traditional forecasting methods, like spreadsheet models, and manual processes no longer being effective in such a volatile business landscape.
With all these big-picture challenges, securing cash for investment becomes a top priority, but the correct way to do so is not obvious. While bank loans and overdrafts might appear to be easy short-term solutions, they can apply additional pressure on cash flow when those repayments are due, which may come during even more turbulence.
Indeed, external investment and selling shares can introduce risky third-party influence into the business and even dilute its value. Working on improving efficiency through process optimization and automation may help, but generally, this will only yield value incrementally and take a long time to have any real impact. More extreme measures, like divesting underperforming business divisions or asset liquidation, could be taken to speed up efficiency gains, although it could similarly jeopardize the company’s long-term stability.
One solution that has the potential to produce a significant cash injection without sacrifice is to unlock working capital through accounts receivable (AR) ledgers. This means optimizing the management of outstanding invoices and customer payments. By streamlining the AR process, a company can reduce the time it takes to collect customer payments or days sales outstanding (DSO), ultimately converting unpaid invoices into readily available cash. This can boost liquidity without additional debt or risking the company’s financial stability, making it an attractive option for businesses facing cash flow challenges.
However, it is getting to a point where the oldAR approaches, such as manual invoice processing, will no longer cut it. The most competitive companies are turning to automation and advanced analytics to maximize their cash flow in this way. However, leveraging these modern capabilities doesn’t need to be overly complicated or expensive, particularly if you partner with an experienced managed service provider like Corcentric.
Corcentric Managed AR works as an extension of the existing AR team, with experienced finance specialists managing receivables on the company’s behalf, regardless of how many invoices it processes. This saves internal personnel from having to chase collections or manage disputes, and they can be reassured knowing that Corcentric’s white-glove approach will ensure customers are always handled with respect. The solution maximizes customer process efficiency and frees up the AR team by automating manual and repetitive invoicing processes. This can all be achieved without recruiting, training, and managing additional staff or investing directly in new technology.
Any upfront investment quickly pays for itself because the solution frees up cash as it grows through the business. International businesses can begin with Managed AR in one region and gradually expand, with the option to pilot the scheme on an initial sub-ledger before scaling up to release more working capital.
Managed AR provides visibility into financial data through advanced analytics so finance teams can identify opportunities for growth and any risks. Visibility into customer communications and payment status is also still provided even when processes have been automated.
Corcentric has designed the Managed AR solution to reduce the burden on IT teams rather than increase it. Automated invoice creation and delivery processes allow companies to efficiently manage their AR without necessitating complex and time-consuming proprietary ERP integrations. Additionally, Corcentric strongly emphasizes security and compliance, regularly testing the service to ensure it meets the highest standards in those areas.
A key differentiator for Corcentric Managed AR over other options like invoice factoring is that it is a non-recourse and fully-funded solution. This approach removes the risk of unexpected costs, such as if a customer defaults on payment while ensuring all invoices are settled within guaranteed timeframes. Cash flow predictability is bolstered as a result, while the risk of bad debt is effectively eliminated, providing long-term financial security.
Corcentric has been matching the right people, processes, and technology with businesses to help them improve working capital since 1996 and recognizes the growing need for cash flow optimization. Consequently, its Managed AR solution, which has given customers a 60 percent DSO reduction and an 86 percent decrease in disputes, has become an asset to many companies looking for a competitive edge.
This includes North America’s leading commercial vehicle manufacturer, Daimler after its National Accounts parts division approached Corcentric seeking enhanced billing and technology expertise to cover its expanding fleet parts business. The deployment of the Managed AR solution not only improved processing efficiency but also provided valuable insights into customer trends, helped produce spending forecasts and informed strategic initiatives. Managed AR reduced Daimler’s DSO from 37 days to 15, and enabled 17,000 direct connections between Daimler dealers and buyer ERP systems.
Corcentric understands that every business is unique and leverages individualized solutions to ensure the Managed AR seamlessly aligns with specific financial goals and requirements. Contact its expert team today to discuss a customized strategy for your organization that will unlock the full potential of your working capital.
6 December 2023
6 December 2023