Having long dealt with cash flow challenges and dated paper-based processes, accounts receivable teams at industrial and manufacturing firms are finally digitizing their operations.
After the events of 2020, the pressure on industrial and manufacturing companies to digitize their accounting operations has grown exponentially.
New data from a survey of over 400 Chief Financial Officers proves as much, with 95.5% of respondents at industrial or manufacturing companies with at least $25 million in revenue reporting that they’re currently integrating digital technologies into their accounting operations.
Despite these industries having wasted no time introducing technology and automation on the production floor, the same can’t be said for the accounting and administrative side of things. Until recently, accounting digitization was an area largely unexplored by most companies in these sectors.
In this blog, we’ll take a look at why industrial and manufacturing companies are now embracing accounts payable (AP) and accounts receivable (AR) software, and what priorities top these finance leaders’ lists.
The state of accounts receivable in industrial and manufacturing companies
Accounting processes within industrial and manufacturing firms have traditionally relied on highly manual work involving large volumes of paper.
We see this illustrated in the industry’s reliance on checks. Even after March 2020 when most businesses in other industries were minimizing their use of checks due to the pandemic, checks made up 26.4% of all industrial and manufacturing companies’ payments compared to the likes of technology companies, which averaged 20%.
In an industry where profit margins are already tight, effective cash management becomes all-important—especially now as businesses continue to deal with disruptions brought on by COVID-19. As finance leaders look to support cash management by enhancing the accounts receivable function with technology, a few key priorities have emerged.
Invoice management is industrial and manufacturing firms’ top area of focus for digitization, with 73% of CFOs reporting they are concentrating on this area, which is markedly higher than the average across all industries of 54%. Tracking receivables (those already paid and not yet paid) is next with 50% of industry leaders prioritizing digitizing this area, followed by managing collections at 41%, and processing payments at 23%.
Optimizing the invoicing function is a good place to start for industrial and manufacturing companies hoping to increase cash availability. Slow and jumbled invoicing practices can ultimately lead to late or delinquent payments, which on big ticket items (often what these industries are dealing in) can be disastrous.
It takes businesses on average 10 days just to process a single invoice after receiving it, which can be made longer when dealing with paper (especially now that it’s uncertain whether your recipient will be in-office). For manufacturers, cash flow issues can mean incurring debt to make sure they have the supplies they need to fulfill orders.
This push for better sending and tracking of invoices also looks to be an indication of industrial and manufacturing companies’ efforts to improve buyer/supplier relationships, a special priority for these industries.
CFOs in industrial and manufacturing view accounting digitization as transformation more than automation
The survey data also shows that a paradigm shift has taken place in companies’ rationale for modernizing their accounting operations.
Although metrics like reductions in paper used, hours worked, and manual errors made are still important, data proves a growing share of CFOs at industrial and manufacturing firms see going digital as more than just automating existing processes. They see accounting digitization as an opportunity to create entirely new processes—essentially transforming them.
Across all industries, the majority of CFOs (57%) view transformation as their main motive for digitizing accounting operations as opposed to automation. When looking at responses from finance leaders in industrial and manufacturing fields, this sentiment is even more pronounced.
In more traditional industries where digital technology has made fewer inroads—for instance, waste management or utilities—it makes sense for executives to be more focused on comprehensively transforming dated practices than automating the work as it is.
But given finance executives at industrial and manufacturing companies are still prioritizing automation to varying degrees in addition to transformation, the best solution for digitizing their accounting processes would be a platform that streamlines AP and AR in new and better ways while having the capability to automate specific tasks.
The best accounts receivable software for industrial and manufacturing companies
When searching for a tool to help with accounts receivable management, industrial and manufacturing companies should consider the following priorities.
1. Scaling processes without adding headcount
With tight budgets and cost reduction efforts focused on the production floor, industrial and manufacturing businesses often have difficulty scaling their administrative staff. That’s where accounts receivable automation software can be especially helpful. The right platform will enable your compact team to shift their focus on what’s top priority by eliminating the hours they spend on highly manual work.
To help your team get up and running as fast as possible, prioritize ease of use and quality of customer support when researching accounts receivable solutions.
2. Complete invoice tracking and transparency
With traditional invoicing practices like print mail and email, after billing your customers you’re left to wonder whether they’ve opened or even received your invoice. But with online invoicing software that automatically sends and tracks invoices for you, you can know exactly what the status of an invoice is—whether it’s been successfully received, seen, or opened and when.
With busy schedules that often keep them on their feet well past working hours, your customers also want an easy way to check the status of their invoices. An accounts receivable solution equipped with a self-service portal just for your customers is optimal as it allows them to check their accounts anytime, anywhere. With click-to-pay and e-wallet options, you can even enable customers to pay their balance directly from an invoice.
3. Easy deduction and dispute management
Often in manufacturing a sale might not be complete until goods have been inspected. If a problem is discovered upon inspection but the payment has already been made, a customer might choose to short pay on a future order, which can significantly complicate the accounts receivable process.
Rather than having your AR specialist chase down multiple members of your team for answers as to why a deduction may have happened, it’s easiest to have them go right to the source—your customers. With accounts receivable software that lets your team communicate and collaborate with customers directly over the cloud, you can quickly resolve discrepancies that would otherwise lead to late payments.
4. Automated collections
Following up with customers over unpaid invoices proves to be a challenge for accounts receivable teams at industrial and manufacturing firms, with nearly 30% of manufacturing companies’ receivables reaching more than 30 days past due on average in Q1 of 2021, more than half of which were over 90 days past due.
With typical collections processes involving getting on the phone with a customer—when and if they pick up—this important task can quickly become overwhelming.
Make it easy on your team by sending customers automated reminders before and after their payment is due. And for those invoices that are still overdue, there are solutions that can help you manage your customer outreach, prioritize which accounts to tackle first, and manage collections tasks between team members.
5. Integration with your ERP
Your enterprise resource planning (ERP) platform is the lifeblood of your business, acting as your home base for everything from inventory management to quality control. When bringing on a new tool to support accounts receivable management, it’s important that it integrate with your existing ERP system.
With data feeding back and forth from your AR solution to your ERP, you can be sure of your data’s reliability and save precious time by eliminating the need to manually reconcile information between the two. Going the extra mile and integrating your payment processing within your ERP streamlines your operations even further and provides multiple cost-saving benefits.
The easier way to manage your cash
The volatility that industrial and manufacturing companies have to deal with makes a great case for effective and careful cash management. Previously an untapped resource, finance leaders are finally realizing the benefits optimizing accounts receivable can have for accelerating cash flow and unlocking working capital.
Speak with us about Versapay today to learn how you can start transforming your accounts receivable operations. To learn more about how finance leaders across all industries are planning to implement accounting digitization, read this report from Versapay in collaboration with PYMNTS.com.
This guest post was originally published on Versapay's blog site. The content in this guest blog is for informational and educational purposes only and may contain copyrighted material from Versapay.