3 Common Cash Flow Problems: How AR/AP Digitization Helps

Posted on January 23, 2023

59% of CFOs in real estate, wholesale trade, and industrial/manufacturing companies see AR/AP digitization as a way to transform their businesses. And we agree. This article outlines the three common cash flow problems every business can relate to, and we show how introducing AR/AP automation can help. Cash flow. The lifeblood of every business and the lack of it is often one of the main reasons enterprises fail. Regardless of how one views cash flow, the basics remain the same: Generating sales and leads is great. Unfortunately, it only matters if money is collected. Growing an enterprise and scaling it is essential, and having cash month-to-month to achieve it is vital.  

Here are the three common cash flow problems that tend to crop up across the board regardless of organizational size: late payments, accounting department inefficiencies, and lack of payment flexibility.

1. Late Payments

Late payments are a common problem in every company, and no one is immune. The first step is to research and understand the main culprit behind late payments. 

Areas to investigate: 

  1. Are customers missing payments or paying late? There are many reasons why customers are late in making payments. More often than not, without automated reminders in place, forgetting to pay has become quite common in every industry. 
  1. Or is the culprit a high days sales outstanding (DSO) number? Is the organization failing to send out invoices on time? Are payment terms customized to deliver a positive cash flow? Have payment terms and dates been clearly outlined? 
  2. How are payments collected and processed? Is the organization using outdated and time-consuming payment methods such as cheques? Can payments be easily tracked and managed? 

Late payments create a negative ripple effect throughout the organization. Whether it's because invoices are delayed due to human error and inefficient manual processes or because the finance team is spending vast amounts of time chasing customers, reminding them of the need to pay or simply to update their credit card expiry date. These challenges affect the bottom line and interrupt cash flow. 

Solve Common Cash Flow Problems: Late Payments

Firstly, work on eliminating outdated payment methods such as cheques and introduce digital payment solutions. Processing paper cheques significantly drains organizational resources and takes a big chunk out of the profits. Digital payments are fast. In fact, Deloitte's PayTech Revolution report found processing digital payments is more than 50% faster than traditional payments. For example, with VoPay's EFT iQ11 payment solution, funds are dispersed on the same day,  instantly. 

As quicker payment processing translates to better management of the company's receivables, both Customer Experience officers (CXOs) and Accounts Payable (AP) teams rejoice.

Introducing automated invoice processing and automated payments makes it faster and easier to keep up-to-date with accounts while delivering the benefits of a positive customer experience and a happier retained client.

The benefit of automation: reduced payment processing time

Solve this common cash flow problem with faster payments; money that can be sent and received almost instantly makes it easier to stay on top.

2. Inefficient Accounting Practices

Did you know that 7 out of 10 finance teams spend up to 10 people-hours per week on account payable-related tasks? That's about 520 hours a year. Instead of focusing on the task at hand, employees are busy sorting through paperwork. One of the most significant downsides to this element is time lost. Accounting teams should be working on essential tasks or at least fulfilling ones, not searching through paperwork and looking for account names and numbers.

The top four accounting processes businesses say eat up their time, minimizes their output, and maxes out their resources. 

  • Balance sheet account reconciliations  44% 
  • Variance analysis 39% 
  • Bank and credit card reconciliations 36% 
  • Journal entry creation 28%

Solve Common Cash Flow Problems With Accounting Automation

Free up the AP team to do what they do best, and focus on delivering the financial reporting. Becoming strategic partners with management and providing real-time updates means better decision-making. Overall, this approach can improve supplier relationships and help protect the company's bottom line.

Introduce automation to Accounts Payable tasks such as:

  • Invoice processing
  • Supplier inquiries and supplier payment execution
  • Purchase order matching
  • New supplier registration
  • Payment reconciliation 

Through a single, global, scalable API, VoPay's Fintech-as-a-Service solution allows companies to manage the full cycle of money movement from payment and approvals to reconciliation and accounting in a fully integrated, automated and transparent way. 

Digital payments significantly reduce reconciliation fees and effort. The total cost-efficiency gains could go as high as 500%. Streamlining accounts receivable automation software and AP processes are essential to keep things organized and increase productivity. 

The benefit of automation: a significant decrease in administration expenses

Every industry will need to start looking at quantifying the qualitative in the future. In particular, companies need to find ways to reduce the amount of time their workers spend on non-strategic tasks. Industry leaders are already reaping enormous benefits by introducing automation and shifting workers' hours to tasks that can be linked to a higher return on investment. 

3. Lack of Payment Flexibility

Traditional billing solutions are not designed to accommodate different payment terms, new pricing or new offerings. This means a backlog in offerings, difficulty in finding the right pricing and eventually delayed revenue. A growing number of Canadians want to be able to pay their bills and taxes electronically. Payment friction is frustrating consumers; over 50% say so. From payment limits to constraints on how they can pay often leads to a missed opportunity for companies looking to scale and optimize their cash flow.

More Payment Solutions Allow Businesses To Scale 

Merchants and businesses should be prepared to provide various payment options that meet the preferences of their clients. Fintech-as-a-Service platforms are built with flexibility in mind. A connection to all major payment rails allows merchants to provide customers with the ability to utilize different payment options and side-stepping constraints like credit card transaction limits. 

Introducing AR and AP automation into payment processing helps enable and support enterprise growth. Meanwhile, the accounting team transforms into a powerful centre for insight due to new tools built into accounting software that offer looks into customer behaviour.

Benefits of automation: Expanded organizational capabilities

Stronger vendor relationships are also a benefit. Delayed invoices or delayed payments will affect the relationship over time, but this will never be an issue by going the automation route. And the relationship will benefit and, in turn, positively affect the enterprise.

What's Next? 

Is your business looking to... 

Go to market with a product, subscription or service in North America?   

Collect payment digitally rather than via cheque or wire transfer?

Have more control or visibility into your accounts receivable?

Our innovative payment technology and verification tools meet AR/AP automation to create a complete financial solution to empower businesses to automate labour-intensive processes, maximize working capital, and facilitate faster cash conversion. 

With VoPay's Payment Platform, You Get 

Improved client loyalty 

With 86% of buyers willing to pay more for a great customer experience, CFOs are now revamping their age-old AR management practices to make them more user-friendly. 

Advanced compliance 

With best-in-class payment technology and open banking verification solutions, enterprises can unlock better automation tools for digital payment processing. It also enables two-factor authentication, role-level access, and fund-on-file tokenization.

Zero-touch processing

With 'zero-touch processing,' companies can deliver invoices to customers with payment links. Remittance information is directly collected and matched to organizational codes with minimal manual intervention with the advanced OCR engine.

Learn more about the benefits of our products and how we help software solution providers embed payments into their platforms. Contact us today.

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