Optimizing accounts receivable: Where’s the ROI?

When it comes to optimizing accounts receivable, identifying the expected return on investment (ROI) is an essential part of the exercise. To build a compelling business case, you’ll first need to be able to spell out the benefits that a new solution can bring. For cash application solutions, the ROI tends to be limited to operational expense savings – but more ambitious collections management solutions can deliver ROI in a variety of ways.

Collections solutions and AI

In particular, collections solutions that use artificial intelligence (AI) to prioritize the riskiest accounts can deliver significant benefits. For one thing, companies can typically reduce their overall accounts receivable by 20 percent and reduce their days sales outstanding (DSO) by 15 days or more, which speeds up the cash conversion cycle. With this type of solution, companies can also reduce their portfolio risk exposure, leading to a reduction in bad debt expenses. And with more control over AR, companies can forecast their future cash flows more accurately.

Cost benefits

There are also operational cost benefits to factor in. With a manual process, the collections team may not have time to contact every customer even once a month – but by automating the process, collectors should be able to work through their entire portfolio multiple times a month. As a result, companies can handle more accounts per person than they would be able to do manually and may be able to reallocate headcount to value-added work.

Given these benefits, companies can generally achieve an ROI within six months of adopting a collections solution – and in some cases, much sooner. For companies adopting a software-as-a-service (SaaS) collections solution, the lack of infrastructure costs and the subscription-based pricing model means it’s easy to budget for the solution on a monthly basis. What’s more, companies can take advantage of new features and functionality as soon as they are available.

In conclusion, when it comes to achieving ROI, it’s important to look at the bigger picture. A standalone cash application solution can certainly help reduce operational expenses. But to achieve ROI in a more comprehensive way, companies should look at a fully integrated accounts receivable software featuring credit, collections, dispute management and cash application, as part of a wider range of improvements, from reducing DSO and lowering the overall portfolio risk to improving the accuracy of the cash forecast.