How to measure the true savings of accounts receivable automation

Finance teams today face mounting challenges. Exploding payment volumes at unprecedented speeds are matched with an exponential increase in new payment channels. Payment files come in from different systems and sources – and in different formats – which makes reconciliation and integration a very heavy lift for accounts receivable (AR) teams. As a result, straight-through processing is fleeting, and the cash conversion cycle is sluggish. No, manual AR processes are not sustainable or affordable, but is accounts receivable automation the true panacea? Do the shiny promises of AR automation offer real savings? And are they worth the investment? 

Understanding the biggest accounts receivable automation benefits 

Accounts receivable (AR) is at the epicenter of any and every business. AR’s fingerprint is on the company’s balance sheet, liquidity, and customer experience. That’s why opportunities to streamline manual AR processes, and fully automate AR, deserve serious consideration. AR automation can connect data and dollars, effectively boosting customer care and efficiency across the entire cash conversion cycle. 

Top accounts receivable automation benefits include: 

• Reduced costs due to automating repetitive, manual tasks.
• Faster payments thanks to rapid invoicing and remittance processing.
• Operational efficiencies by freeing employees from time intensive processes.
• Happier customers who enjoy a reliable, frictionless payer experience.
• Extraordinary accuracy compared to the human error associated with manual work.

While AR automation clearly saves time, money, and labor costs, acquiring investment approval to launch an automation initiative requires more than a simple list of qualitative pros. Decision makers want to see quantifiable AR automation savings, and the cost benefit of automation AR process implementation.

How to quantify the savings of accounts receivable automation

Company leadership need data to determine if the ROI of automated accounts receivable justifies the investment. Here are two simple calculations that will help quantify the savings of accounts receivable process automation.

Determine the cost of carrying receivables 

Total annual credit sales, multiplied by interest rate, and divided by 365 days. Then that number is multiplied by the average days sales outstanding.

Days sales outstanding (DSO) is the average number of days it takes to collect payment from customers. Let’s say your DSO is 60 days. That means this equation indicates how much it costs to provide your customers with credit every 60 days.  

But what if you could collect payment faster? Run this equation with a reduced DSO and look at the implications. You could access cash flow currently trapped in uncollected receivables and enjoy interest savings on those dollars. 

Assess labor costs 

On average, AR automation platforms reduce labor related to collections by at least 30%. At the same time, payroll is usually the biggest expense related to collections. Add up your total annual payroll costs for employees who manage your collections and multiply by 30% to see what you could save via automation.   

Businesses of all sizes can enjoy AR automation 

With receivables automation by Deluxe, you can streamline your AR processes and accelerate cash application across all payment types, protecting your company’s day-to-day operations with a single, end-to-end platform.