Accounts Receivable Report: Most Popular Software for A/R Management among SMBs

Transcription

1 Accounts Receivable Report: Most Popular Software for A/R Management among SMBs Results from a Q Study of the Current State of Accounts Receivable in Small & Medium Sized Organizations

2 2 Abstract: This white paper analyzes and explains the results of a survey conducted by e2b teknologies in Q in which small and medium sized B2B companies were polled regarding their current strategy for managing accounts receivable. The white paper that follows will share the results of this survey and what our findings mean for the B2B sector.

3 3 Contents Introduction:... 3 Methodology:... 4 Respondent Profile:... 4 Data collection Method... 4 Summary of Findings:... 5 Explanation of Survey Findings... 5 Enterprise Resource Planning (ERP)... 6 Spreadsheets... 8 Manual processes... 9 Customer Relationship Management (CRM) Custom-Built Software Solutions Accounts Receivable Management Software Unlock Your Accounts Receivable Potential Conclusion... 15

4 4 Introduction: As the publishers of Anytime Collect accounts receivable management software, we work with companies of all kinds who operate across various industries; from small companies using QuickBooks to multimillion dollar companies using Enterprise ERP systems. In our experience with customers from many different industries, we have come to a realization: No matter which industry a company is in or what kind of accounting system they use, they all struggle with the same thing- inefficiencies when it comes to managing accounts receivable and cash flow. Our customers come to us struggling with issues directly related to a lack of standardized processes, inefficient processes, and a staff who is overwhelmed by the huge amount of time and energy it takes to collect outstanding receivables. Why? Because many of them are not using the right tools for the job. We see the same situations time and time again, which made us wonder what tools are a business-tobusiness companies using to manage A/R and how prevalent is this problem in the B2B sector? To this end we developed our survey. The goal of this survey was to better understand how midmarket B2B companies currently manage accounts receivable and what it means for the sector as a whole. The following report outlines the parameters of our survey, analyzes the results, and provides an in-depth explanation of our findings and what they mean for this large category of businesses. Methodology: Respondent Profile: This survey was distributed to companies using popular SMB accounting and ERP products from Intuit, Sage, Microsoft, and others. The survey represents companies in many diverse industries with a high concentration in manufacturing, distribution, and business services. Survey respondents were predominantly from midmarket B2B organizations with $10 Million to $250 Million in annual revenue using midmarket ERP solutions compared to fewer respondents from smaller companies using entry-level accounting applications such as Intuit QuickBooks and Sage 50 solutions. Data collection Method This survey was conducted via online polls, surveys, and phone interviews conducted by e2b teknologies starting in 2013 through The survey asked, How do you manage A/R collections today? Respondents were then given 7 options for their answer. These options were: Manual Spreadsheets ERP System CRM System Collection software Custom Software Other Method

5 Summary of Findings: The goal of this survey was to better understand how midmarket B2B companies currently manage accounts receivable. Below is a summary of our findings: Quick Takeaways: An overwhelming majority of companies (47.93%) are using their ERP business systems to manage credit and collections % reported using manual, paper-based strategies or spreadsheets and reports to manage collections. CRM systems are the least common method used to manage A/R among these companies (3.31%) A large majority of B2B companies, arguably 95.87% of them, are not using the right tool for the job, an accounts receivable management system designed to support the entire invoice-tocash process Adoption of specialized accounts receivable management software is still low among SMB companies with only 4.13% adoption. o It is important to note that other studies on the subject, such as a recent study done by The Credit Research Foundation (CRF) found that adoption of these solutions was closer to 26% industry-wide but we believe that this report may be skewed. The members of CRF, likely the ones who took the survey, are generally large enterprise businesses with a more formalized credit and collections department where our study is focused on the midmarket.

6 6 Explanation of Survey Findings Enterprise Resource Planning (ERP) In our survey, 47.93% of respondents reported using their accounting or ERP system to manage credit and collections. That means nearly half of mid-market B2B companies are using systems that notoriously lack the depth of functionality, insight, and automation required to properly manage the accounts receivable process. So, if these systems are not meant for A/R management, why do so many companies use them to that end? This is because many ERP systems offer an accounts receivable module which makes companies think they are getting all that they need from their ERP. The problem is that the tools and capabilities in those modules are usually minimal, lack automation, and are ineffective in supporting the quote to cash process. ERP solutions are woefully inadequate in terms of receivables and collections management functionality. Some of the major issues with managing A/R in your ERP module include their inability to handle disputes and dispute resolution, the need for additional dependent modules, the lack of sophisticated reporting, the need for outside applications and spreadsheets to fill functional gaps, their inability to automatically update account information, and extreme process and workflow inefficiencies. Dispute Management: Depending on the complexity of a business, there could be many different invoice related issues that result in dispute. Each of those disputes may then require different processes for resolution and ERP systems are not sophisticated enough to develop workflow around those different resolution paths or support the many situations that affect accounts receivable. In a recent industry report, Revenue Cycle Management: Increasing Control of the Order-to-Cash Process, PayStream Advisors agree that ERP systems lack the narrow focus necessary to address all the variations and unique situations that affect trade receivables management. Costly Dependent Modules: Many ERP systems, while they offer accounts receivable modules, force companies to implement dependent modules in order to gain access to the accounts receivable module. So when you think you need only the one A/R module, you might have to activate multiple different dependent modules too. By having to activate the additional modules, you will likely incur added license, service, and support fees, not to mention that the

7 7 additional modules will prolong and complicate implementation. In many cases you can find an accounts receivable management software solution that can integrate seamlessly with your ERP system that will not only save you those hidden fees, but offer you far greater value and functionality than your ERP module. Reporting: ERP accounts receivables generally offer very few reports and virtually no flexibility within the reports provided. This means companies cannot pick and choose which data to extract and analyze without building custom reports or using an outside system. Building custom reports will take IT resources away from their more critical tasks, and using outside applications increases workload, the risk of data entry error, and many other issues to be discussed later in this document. Filling gaps with outside applications: because ERP does not allows collectors to view information in a holistic way, they usually have to jump between programs, check spreadsheets, and dig through old s to see the most recent information pertaining to an account. ERP also lacks the ability to automatically update information, which means collectors must manually enter all account notes, communications, contact information, and other pertinent information. This burden of manual data entry and reentry into other systems makes the entire process much longer, very overwhelming, and opens the door to data entry errors, data silos, miscommunications, and other serious problems that can further delay collection and hinder cash flow. Process and workflow inefficiencies: As mentioned above, ERP systems do not offer the most up to date information which requires collectors to use applications like Excel to fill the gaps. This long process drastically increases the overall time it takes for a collector to prepare for a call, communicate with the customer, and update information after the call. According to a study by the Customer Value Group the average time it takes for a collector to handle a communication with ERP is much longer than if they were using a specialized accounts receivable management system. The information from their study is in the table below: Activity Average time with ERP Average time with accounts receivable software Research account information 5-10 minutes 2 minutes Actual phone call with customer minutes 10 minutes Post-call activities minutes 4 minutes Total time spent minutes 15 minutes

8 8 As made evident in the above study, with the automated communications features in A/R management software, companies can just about cut the time spent on a single communication in half and increase your productivity by about 50%! Not only will you be able to make more calls, but they will be much more effective and professional when collectors have all of the most recent account information at their fingertips. The bottom line is this, ERP systems try to do everything, so it is no wonder that many companies believe that they can; but many experts in the field of credit collections are of the same opinion as we are, that ERP systems are unable to support the invoice-to-cash workflow and meet the needs of an accounts receivable professional for fast and effective collections. Industry analysts PayStream Advisors agree that, ERP solutions are woefully inadequate in terms of receivables and collections management (RCM) functionality. Spreadsheets Our survey results revealed that 16.53% of midmarket B2B companies are using spreadsheets to manage their accounts receivable. The biggest problems with managing accounts receivable on spreadsheets is the need for constant updates, having too many versions of the spreadsheet saved on desktops, the high risk for data entry errors, and the static nature of these documents. 94% Of Spreadsheets Contain Errors Your spreadsheets data is only as correct as its most recent update. Because spreadsheets are static in nature and do not have the ability to automatically update themselves, updating that data is time consuming, and usually takes the back seat to other more critical tasks. Because of this, these spreadsheets are not updated as frequently as they should be (daily) and A/R employees end up working off of old data or relying on account notes scribbles in margins. Working off of that outdated and unorganized data can create all kinds of confusion and issues with customers and customer service which can further delay payment and breed negative feelings about your company in your customers. Another problem with spreadsheets is that they multiply and the master spreadsheet tends to breed additional spreadsheets which get stored in different places and different desktops through the A/R department. Sure, you may all make a pact to keep it in one central place and edit it there so you can all stay on the same page but we all know how quickly and easily that plan can derail. There could eventually be thirty or more different versions of that master spreadsheet saved onto various desktops

9 9 all with different information and then the team ends up working autonomously and inefficiently with different data, old date, etc. What about the possibility (and probability) of mistakes being made on those spreadsheets? A study by Dartmouth College s Tuck School of Business found that 94% of spreadsheets contained errors. That is a huge percentage! So every time data is entered or re-entered into a spreadsheet there is an enormous risk being taken. Your credit and collections team relies on that account information to track and analyze customer payment information, manage disputes, contacts, and all of their other tasks. If the data on those spreadsheets is incorrect, then you re A/R employees are going to have to spend even more time gathering information and fixing errors and that much less time building relationships, settling disputes, and talking with your customers about payment. Manual processes Our survey revealed that a relatively large portion (13.2%) of B2Bs are using manual processes, such as spreadsheets and aging reports, to manage their accounts receivable. In our experience, we have found that companies who use manual processes struggle with their accounts receivable management because collectors are spending too much time updating spreadsheets, searching for information before a collection call, and managing data to communicate with their customers about outstanding invoices. This means their credit and collections team is spending a majority of their time on tasks that do not directly relate to collecting what is owed to the company. Paystream Advisors also found this to be true in their 2013 Revenue Cycle Management Study. The study found that companies who do not use accounts receivable automation software and rely on manual processes to manage collections, spend 15% of their time prioritizing their activities, 15% of their time gathering information to make collection, and only 20% of their time actually communicating with their customers about payment. On the other side of that study, PayStream found that companies who are using accounts receivable automation software spend only 6% of their time prioritizing their activities, only 6% of their time gathering information for collections calls, and 62% of their time

10 10 communicating with their customers about payment. That is a huge difference in time spent communicating with customers and has a significant effect on accounts receivable management results. This proves that if those companies relying on manual processes implemented accounts receivable management software, they could just about triple their efficiency and drastically improve their cash flow because the automation would allow them to cut back on time spent prioritizing activities, looking for information, and updating spreadsheets, and a significant amount of time can then be reallocated to outbound calls, dispute resolution, and other more critical collections tasks. Why is this important? Because we have found there to be a direct correlation between the amount of time spent communicating with customers and a company s Days sales outstanding, the average amount of time it takes a company to collect invoices. It can be generalized that the more communication a company has with their customers, the lower their DSO tends to be, the healthier their cash flow is, and they have higher rates of customer satisfaction. Customer Relationship Management (CRM) A small percentage of B2B companies, 3.31% according to our survey, attempt to use their existing CRM software to manage the credit and collections process. Many companies have a hard time seeing the difference between CRM and accounts receivable management software because they share some very similar qualities and overlaps, but it is very important to understand the differences between these two systems: There are two critical differences between CRM and accounts receivable management software: 1. This may seem obvious but, CRM is designed for sales, accounts receivable management software is designed for credit and collections. 2. CRM allows you to document what you ve done. Accounts receivable management software tells you what you need to do and has built in workflow to help you do it better and faster. Paystream Advisors expanded on this second major difference between CRM and accounts receivable management software:

11 11 The key innovation of business-to-business (B2B) collection software is workflow automation. A strategy engine integrates the AR data with a tickler system and activity logs, so account status and previous actions taken can drive the next logical collection step. Moreover, the software can prioritize collection activities, ensuring a consistent and efficient process. Integrated communication tools faxing capabilities, , invoice reprinting, other forms of data export, and auto-dialers further enhance productivity. So with such important and obvious differences, why do people think that CRM is a viable tool for the management of accounts receivable? This is mainly because the process of collecting past due invoices is similar in some respects to the sales process. For instance, in each process you maintain a list of customers and contacts, record interactions with them, and schedule follow up calls. Your CRM can do all of that in its sleep, right? So again you must be wondering, what s the big deal? The big deal is how these systems are used and the functionality your end-users need for optimized credit collections. The individuals responsible for performing collections are generally not sales people, so in order for them to use CRM to manage accounts receivable you would need to purchase additional CRM user licenses as well as add and maintain collections contacts into the CRM system, because collections contacts are usually different than the sales contacts. That doesn t seem so bad, but the sales CRM database will contain many prospects and even some customers who have not purchased anything on credit. This will just clutter the system for credit specialists and make their jobs more time consuming than they already are when they have to sift through all of that superfluous information. CRM software can be adapted to address some of these above points through customization or purchase of add-on products which are available for certain CRM software products. However, that adds cost for creating and supporting the customizations and extends the implementation process. Further, in some systems this can create version lock preventing access to new versions of the CRM software due to heavy customization. Trying to make CRM work for your credit and collections may sound like a great idea, and while it can be done, it will lack the automation, workflow and rules found in accounts receivable management software that help you become more efficient and effective in your credit collection processes.

12 12 Custom-Built Software Solutions 4.96% of the respondents in our survey reportedly use a custom software solution to manage their accounts receivable. Some companies require custom solutions, but most companies looking for accounts receivable management software can find a near-perfect fit solution on the marketplace and customize in any features they did not get outof-the-box. In the long run, a marketplace solution will save them a huge amount of time, money and hassle while also providing them the best ROI on their investment. While custom-built solutions do give you exactly what you are looking for, there is much more to it than that. Generally speaking, these custom-built solutions are more trouble than they are worth. Below are some of the biggest problems and sources of frustration that come with custom software solutions: Initial design and any changes to the software are very expensive. It will take much longer to build and implement a custom-built solution than buying an out-ofthe-box system. If you develop it internally, what happens when your IT resource retires or leaves? Does anyone else know the system to fix problems or handle upgrades or changes in the system? If you do not develop it internally, any work done on the system will be very expensive as custom work always is. Is software development a part of your company s core competencies? If not, you truly should consider buying an out-of-the-box solution. Will the custom software be able to handle change in technologies in the future? If you plan to support the system internally, you will be taking your IT team away from their core jobs and that time will be spent on dealing with system bugs, errors, updates, etc, not on growing your business. A custom built system is not a proven tool and could end up being a waste of time, money, and resources. Can your custom solution integrate with your other critical business systems? Without seamless integration information silos will be created in the custom system leading to struggles with data re-entry and other inefficiencies.

13 13 The simplest way to make the decision between building and buying software is to consider how it is going to affect your bottom line. Make sure that if you are going to build your own solution, it is because you really, truly, must do it that way and there is no other viable option. The main point is this: why reinvent the wheel? Especially a wheel that is not guaranteed to work well, is extremely expensive, and more trouble than it is really worth? There are plenty of leading solutions available that will be much more cost effective and have been designed to take care of a majority of the things you need it to do, with customization options available for the extra functionality a company needs. Accounts Receivable Management Software Accounts receivable management software such as Anytime Collect, does what ERP, CRM, spreadsheets, and other manual processes cannot, it gives collectors all of the tools, automation, and insight required to collect A/R faster and more effectively than those other strategies. Our survey revealed that an alarmingly low percentage (4.13%) of midmarket B2B companies use accounts receivable management solutions in their accounts receivable departments, leaving 95.87% of companies that are working harder, not smarter, and struggling to take advantage of one of their largest assets, accounts receivable. Accounts receivable management software is a suite of integrated business applications that extend a company s accounts receivable and accounting system to facilitate credit management, dispute management, collections, and related business processes. Accounts receivable management systems vary by publisher but typically support four key functional areas which are: - Credit Facilitation, which includes credit scoring, credit application processing, reference checking, ordering credit reports from credit bureaus, financial statement analysis, new account approval, order approval, credit limit decisions, accounts receivable portfolio monitoring and credit risk management. -Collections Management, which includes workflow automation driven by a collection strategy engine, prioritized collection activities, integration of A/R data, a reminder system, activity logs, account and invoice level notes, integrated communication tools, faxing capabilities, , invoice reprinting, other forms of data export, payment plan calculators, imaging tools, and auto-dialers.

14 14 -Dispute Management, which includes dispute and deduction resolution, chargeback processing, exception reporting with automated escalation processes, a routing engine, collaboration tools, document sharing, and tools for root cause identification. -Reporting and Analysis, including cash forecasting, dashboards, alerts, query capabilities, out-ofthe-box reports, report generators, workload balancing, exception reporting, cycle time analysis, portfolio risk management, customer intelligence, and month end reporting tools. Who Needs Accounts Receivable Management Software? Companies in many different industries struggle to manage outstanding accounts receivable, arguably any company who sells on credit should consider the use of accounts receivable management software to help them streamline their processes. According to a report from Credit Research Foundation, the industries with the highest median percentage of uncollectable receivables included manufacturing, specialty trade contractors, business services, engineering services, and wholesale distributors. (CRF report) Unlock Your Accounts Receivable Potential Implementing accounts receivable management software is like hiring a professional credit and collections employee but one that always does what they re told to do, when they re told to do it, and how you want them to do it and you don t have to pay them benefits, and they never get sick or take a day off work. There are many benefits to implementing accounts receivable management software to extend existing accounts receivable functionality and processes. Some of these benefits include reduced transaction costs, improved cash flow and cash forecasting, optimized staff productivity, and reductions in bad debt and write-offs. According to PayStream Advisors, companies who automate collections are realizing: 10 to 20 percent reductions in daily sales outstanding (DSO) 25 percent reductions in past due receivables 15 to 25 percent reductions in bad debt reserves ROI in as little as 2 months and usually in no more than 6-9 months

15 15 To illustrate what these benefits could look like in a company, let s look at a few examples: On average, companies write-off 4% of accounts receivable as bad debt. For a 10 million dollar company, that means they are writing off $400,000 each year. o If this company implemented accounts receivable management software and realized a marginal 10% reduction in bad debt reserves, they could save up to $40,000 a year; cash which could certainly be used for growth, investment in capital equipment, employee salaries, and in many other areas. On average, companies have credit terms of just 28 days, but average DSO is 61, more than double the agreed upon terms! According to Paystream Advisors, if these same companies were to implement accounts receivable management software and recognize a reduction in DSO of 10-20%, they would have a DSO between days over a week faster! Conclusion What Do the Results of This Study Mean to B2B Midsized Businesses? The results of our study support the inkling we had in the very beginning, that a majority of midmarket B2B companies are not using the tools for accounts receivable management that will provide them with the best possible results, and they would benefit greatly from the implementation of the proper accounts receivable management tools. Companies spend hundreds of thousands of dollars on capital equipment and implement expensive ERP and CRM software for their general business and sales operations, but they do not have the same systems in place to automate or manage accounts receivable workflow, potentially losing thousands of dollars a year on bad-debt write-offs, financing costs, and related costs of delayed or denied payment.

16 16 About Anytime Collect Anytime Collect is one of the only accounts receivable credit and collection management applications designed exclusively for business to business credit collections. It scales from small companies using QuickBooks to large enterprises operating multiple companies across multiple ERP systems in multiple countries. Companies that implement systems like Anytime Collect realize a return on their investment in as little as two months by avoiding finance costs; reducing bad debt write-offs; minimizing labor, material, and postage costs for invoice handling and presentment; and gaining significant efficiencies throughout their organization. Join the legions of Anytime Collect fans gaining new efficiencies in their accounts receivable and find out how your business can put accounts receivable on auto pilot today. For more information about Anytime Collect or for a personal assessment of your accounts receivable credit and collections staffing and business needs, contact us today by visiting the Anytime Collect website or by calling

17 17 Success with A/R Automation Software Systems Maintenance Services (SMS) provides technology integration, maintenance, and asset management services to more than 2,000 customers across the nation and deals with more than 3,000 invoices every month. Despite their best efforts, the company s four full-time collectors were struggling to manage their accounts receivable due to the common problems explained above. Their inability to quickly prioritize their accounts and access information resulted in a DSO of 67 and significant cash flow problems. Man power was not what the company lacked, they just lacked the proper tools for efficient credit and collections. We selected Anytime Collect because it allows us to centralize all credit and collections information with instant access to current account aging, invoices, and payment history. Additionally we have CRM-like capabilities to document phone calls, communications, and other related collection activities. Systems Maintenance Services implemented Anytime Collect in 2012 and gained significant efficiencies in their processes without having to hire additional employees. In the first year they saw amazing results, including: A reduction in DSO from 67 days to 40 days- That s a 40% reduction! The company is now getting paid 27 days faster than the previous year almost a full month faster! In their first year after implementing the software, the company continued to grow, adding another 1,000 customers without expanding its staff to keep up with the additional invoices. The company was able to reallocate half of one employee s time to other, more critical business activities. Watch this YouTube video to hear from Systems Maintenance Services themselves. See more Anytime Collect success stories by visiting our resource center

18 18 Resources Credit Research Foundation. (2009). "On Whose Terms?" From Credit Research Foundation. (April, 2009). "CRF Issues 2008 Annual Bad Debt Report. From ch=on+whose+terms+&prd_key=90c7dad6-00af-4154-a846-a6b93843d76e PayStream Advisors. (January 1, 2013). Revenue Cycle Management: Increasing Control over the Orderto-Cash Process. From Powell, Stephen G., Kenneth R. Baker, and Barry Lawson. (December 2008). "A Critical Review of the Literature on Spreadsheet Errors." From