Supply chain intermediaries are embracing new technology to examine and overhaul quotes and rates, shipment tracking visibility, and, yes, financial operations automation. These initiatives all have great promise, and many are paying handsome dividends.
A recent PYMNTS white paper shows that 93% of CFOs are digitizing accounting operations. And nearly two-thirds of respondents cited automation of at least one manual process in their reasons for digitizing AR and AP operations and workflows.
Back office finance digitization can be achieved independent of, or concurrent with, a large-scale, multi-year digital transformation. Thanks to today’s fintech, financial ops automation requires minimal upfront costs and can lead to improved cash flow in several months, not years.
Why AP and AR automation matter to your bottom line — and your Finance team’s capabilities.
Investing in financial operations automation — specifically AP and AR automation — provides a better experience to your shippers, carriers, and billing and collections specialists. Plus, synchronized credit and payment histories offer insights for your controller without manual data mining and reporting.
A staggering 96% of CFOs surveyed in the PYMNTS white paper cited improving customer and vendor relationships as a key factor for automation. Better processes yield better relationships. And better relationships lead to faster payments and streamlined processes.
By implementing AP and AR automation now, you can easily differentiate yourself from laggard competitors. A January 2022 Forrester study reported that the majority of CFOs aren’t automating their AP and AR processes yet, nor are they improving their payment processes, a vital component of cash flow improvement.
Software that marries digital payments, disputes, and reconciliations, and ties them to your TMS and accounting systems with low-code integrations, is practical and affordable. You can begin any time without overworking IT or necessitating a capital expense.
A successful financial operations automation system will incorporate:
- Accepting and sending digital ACH, wire, and credit card payments.
- Tracking credit and assigning creditworthiness.
- Connecting payment records to the accounting system and TMS.
- Consolidating relevant financial documents into one digital location.
- Digitizing customer invoice and overdue payment email notifications.
- Enabling predictive analytics that identify concerning shipper and carrier payment patterns.
Share the benefits of financial ops automation with your key internal and external teams.
Before you can make a positive difference in cash flow with 3PL and freight forwarder fintech, start with a solid foundation on which to build your automation.
Automation is never a replacement for sound policies and deep relationships with your carriers and shippers. And new technology alone won’t fix any long-standing friction between Sales and Credit and Collections. (If this is you, trust us, you’re not alone.)
The majority of CFOs aren’t automating their AP and AR processes yet, nor are they improving their payment processes, a vital component of cash flow improvement.
Katie Keich, CEO of Full Advantage, is an expert in helping businesses increase sales while reducing credit losses, with 18 years of executive experience in credit and collections in the logistics industry. She helped lead the Finance team as her previous employer grew from $5M to $1.5B+ in revenue.
Katie preaches starting efforts to improve cash flow with empathetic conversations that include your team, Sales, customers, and vendors. Here’s what these might resemble at your organization:
- For Finance, convey that AP and AR automation isn’t yet another tool that will add to their daily workload. In fact, it’s quite the opposite. Automation removes the monotonous manual work and task management, enabling your team to focus on work that brings in revenue. They will be able to act on disputes and resolutions with financial docs and communications stored in one place.
- For Sales, communicate the goals and an overview of the automation project, and how this new technology will better monitor clients at risk for hitting or exceeding their credit limits. As Katie says, "Sales is revenue creation, and Credit and Collections is revenue assurance." Emphasize how Finance helps Sales identify which customers they should spend the most time with … and which customers aren’t living up to their contracts.
- For customers, ask what their AP teams need for payment, and when they pay. Yes, we put net payment terms on invoices for a reason. But we often route invoices to an incorrect email address. Or we don’t know which people or systems are involved in the approval process. Or what happens when an invoice differs from the quoted price.
Gathering these insights at the beginning of an automation project ensures the new tech streamlines a process that all parties have agreed upon.
- For vendors, share that they’ll soon receive digital ACH, credit card, or wire payments without having to join a payment network. Explain that you’re helping them improve their cash flow by sending payments faster. Your automation solution should offer a customer portal for easy access to all payment records.
Start strategically with a comprehensive credit policy before automating processes.
Clear guidelines for creditworthiness, along with upfront communication of them to all customers, is nonnegotiable in improving cash flow, whether you opt for automation or not.
If you haven’t yet written a customer credit policy, consider factors such as:
- How do payment histories and other elements revealed in the credit check affect creditworthiness?
- Under what circumstances will you extend more credit? How will Sales be involved with those customer decisions and discussions?
- What happens when the customer isn’t proactive as they approach their credit limit?
- How does your business, and the economy at large, affect creditworthiness and your appetite for risk? For example:
○ Are you willing to extend credit limits and late payments during boom times to attract new business?
○ Will you require pre-payment during downturns?
○ As the top line rebounds, will you allow overextension for 30, 60, or even 90 days for top-tier clients?
○ Do current and new customers understand what conditions might precipitate a change in creditworthiness?
Katie frequently reminds Sales that "all business is not good business." Help Sales understand what current customers may not be worth forging stronger relationships with, and where better potential exists.
Set up automations to monitor and enforce your credit policy.
Once you’ve shared the vision with Sales and Credit and Collections, communicated it with shippers and carriers, and refined your policies, you’re ready for the initial layer of automation: enforcing your credit policy.
We recommend starting here as it’s a natural onboarding point for your financial ops automation system. A worthwhile automation vendor will enable you to:
- Track each customer’s credit use in real-time without any manual entry or data mining.
- Set alerts to notify your team automatically when a customer hits a certain credit threshold — for example, a shipper using 85% of their allotted credit with no payments to date.
- At a system or customer-type level, adjust credit policy rules based on your changing risk appetite.
With these real-time insights, you can ensure poor credit practices aren’t hampering your cash flow.
Your staff won’t spend time running countless manual reports or hunting down documents and payment records scattered across multiple systems. During peak periods of the back office activity, Finance won’t be forced to choose between monitoring credit — a major driver in cash flow — and competing priorities.
Consolidate and connect AR and AP paperwork to minimize payment and reconciliation manual work.
The physical (and increasingly digital) work of payments impacts your cash flow as much as your billing specialists’ time. Automation that doesn’t connect invoices, remittances, quotes, bills of lading, and other financial docs means your staff will still waste time gathering and reviewing records of payments, disputes, and resolutions.
This lack of connection can create a cash crunch. As Freightpay’s CEO has observed, more than $140 billion is disputed every day between shippers, forwarders, and carriers across the world.
This payment lockup affects 3PLs and freight forwarders of all stripes. Intelligent Audit found that 80% of carrier freight invoices include discrepancies such as:
- Missed points on invoices
- Incorrectly assigned liability
- Delays in payments
Yes, discrepancies between invoices, quotes, and bills of lading are sometimes inevitable. And operational changes can reduce that number. But savvy Finance leaders invest in automation that not only consolidates storage of financial documents but also connects them to your accounting system and TMS.
This includes linking your accounting and payments systems to match a remittance to an open invoice and automatically closing it. One system that captures all documents translates to a substantial reduction in the manual effort your billing specialists expend to review documents and build their case to reject or accept additional charges.
Less time for resolutions means, of course, faster time to payment. And your Finance team can cut down the monotonous, manual work of discrepancies and resolutions.
This level of automation may sound expensive. In the recent past, it was. Centralizing these documents into your payments systems and marrying them to the accounting software and TMS once necessitated customized, complicated integrations. Most CFOS found the price tag hardly justified the cost.
Yes, discrepancies between invoices, quotes, bills of lading are sometimes inevitable. And operational changes can reduce that number. But savvy Finance leaders invest in automation that not only consolidates storage of financial documents but also connects them to your accounting system and TMS.
But APIs and advances in light-weight, nimble integrations make them affordable and much easier to accomplish. Instead of sourcing a third-party integrator, you can typically tap the automation vendor’s professional services team to handle every aspect of the project.
Tailor customer email notifications and workflows based on their payment terms and processes.
Of course, not all late payments involve discrepancies or disputes. Unfortunately, customers aren’t as diligent at tracking their accounts payable as your team is.
Katie advocates investing in the people who collect revenue. We wholeheartedly agree. Providing your team with a reliable tool to eliminate that manual work allows them to concentrate on forging relationships, the best recipe for avoiding chronic late payers with bad debt that must be written off.
Once you’ve had the conversations with customers about their billing methods and trained your team to collect debt humanely — and have documented the entire process — you can automate the workflows for customer reminders and notifications that don’t require a human touch.
Your team can set up automatic email reminders by customer or customer type when payments are due, overdue, credit limits have been reached, and any number of combinations or cadence of communications.
The simple act of using systems to alert customers based on their payment terms, and the approval process nuances you’ve already discussed with them, results in more on-time payments and closes the gaps in overdue ones.
For those communications that do require a credit or billing specialist’s attention, you’ve provided them a complete digital paper trail of every communication as they prepare to discuss payment options with customers.
The combination of the right credit policies, automated customer email notifications, and communications from experienced billing specialists for the exceptions can reduce bad debt from the coveted 3-5% magic number to under 1%. Katie has helped organizations achieve this many times over. Finding positive cash flow in the most unexpected of places, such as habitually late customers, is completely possible.
Move from reviewing automated reports to acting on predictive customer analytics.
As your automation system gathers more customer data after continuous use, you can start to Identify and predict payment patterns. Instead of running reports manually and, too often, sporadically, you’ll soon receive system notifications when a customer falls into, or will soon fall into, a concerning pattern.
Predictive financial operations analytics can include clients on the verge of:
- Overextended credit
- Payments averaging more than 60 days overdue
- Recurring, inaccurate disputes
- Any other payments KPIs your organization relies on
You can inform the financial automation system which customer and vendor behaviors you want to avoid. In turn, the system will identify additional poor payment indicators that affect cash flow.
With these insights, you can clearly show Sales which accounts may need conversations to achieve good standing … and which customers they should replace as soon as possible. You’ll also have records of communications and payment dates to determine if placing a delinquent customer on hold is the best course of action.
As always, we recommend a documented policy and a deft touch if you take this route. Consider Katie’s recommended messaging for these difficult conversations:
"If we can’t come up with a number that financially accounts for what you’re spending with us and what’s past due, then in the short term I want to stop the service just so we can get this resolved. Once we get down past due to X, I’m comfortable resuming service and starting an active payment plan."
- Katie Keich, CEO of Full Advantage
Financial ops automation should always follow implementation of the right policies and communications practices. With those established, you can unleash consistent, reliable cash flow improvements.
Start improving your financial operations today.