A/R: Do You Have A Tight Fintech Strategy?

By Nick Roquefort-Villeneuve, Global Marketing Director – Amalto Technologies

Amalto: Fintech StrategyTo unlock funds out of your company’s accounts receivable is crucial for one main reason. It improves your business’ working capital, which provides your organization with the ability to expand the scope of its operations, increase liquidity and maximize its profitability, while gaining agility in case of a shift in your economic environment.

Let’s take a look at what you can actually do, so you’re able to relieve your balance sheet of some outstanding receivables, (and I shall remind you that it tends to be the largest entry on the balance sheet…) and consequently increase your working capital. And prolonging the accounts payable process to maintain existing cash reserves or sensibly increase those cash reserves thanks to yields on the short-term money market isn’t an option, because it may drive some of your suppliers out of business. Moreover, would you like your customers to delay their payments to you for the same reason? Finally, the money will always end up being collected, so we cannot consider that delaying payments is a strategy in itself. And your reputation as a trading partner would be affected quite negatively.

Naturally Yes to A/R Automation…

A decrease in DSO ensures that money be unlocked from your accounts receivable. The adoption of a robust A/R automation solution, preferably fully-managed and of course cloud-based, represents the assurance that the proper documents will flow between trading partners, hence slashing the time otherwise wasted waiting for approvals, for example. The rationale is that the faster an order and its associated invoice are processed, and the latter sent to the customer the quicker payment is made. If there is a dispute, a workflow is made available to the users via the solution’s user interface for immediate reactivity and resolution. A/R automation solutions allow a 1 to N relationship between a supplier and its customers via connections to customer portals, which certainly widens each stakeholder’s trading ecosystem. Having said that, does automation “tell you” which customers are more reliable, faster payors? The reality is that automating the exchange of documents inherent to a business transaction in no way forces the buyer to proceed faster with a payment.

… But, Does It Say Much About the Customer?

What does the action of gathering intelligence about buyers mean exactly? If there were out there, available, a list of all companies in a given industry ranked in order of their promptitude to pay their suppliers, then life would be way too easy. Having said that, there is a tool that suppliers have at their disposal, which is the ability to analyze their current customer base by identifying meaningful KPIs and other metrics that ultimately allow them to choose with whom they want to strengthen a business relation and who they should drop. In other words, business relationships with the weakest, less reliable, customers should either be revisited (new terms) or ended. What makes a customer weak or unreliable pertains to the internal or external information inherent to his credit information, naturally his inability to pay on-time, and other types of behavior maybe a bit more subtle like the content of his claims. It is indeed the supplier’s job to analyze the degree of frivolousness of each complaint… Or on the other end of the spectrum the significance of the claims. In that case, there is much to learn from a customer’s grievance to improve all sorts of A/R-associated processes.

Best-Case Scenario: A 360-Degree View of The Customer?

Knowledge is key. I have always been a huge fan of quantitative and qualitative models, simply because numbers don’t lie. A relationship between a supplier and his customer doesn’t have to start when a purchase order is received and end when the product has been delivered. It is essential to understand who the customer is, so the supplier can adopt enough flexibility and adaptability to make the relation work for him/her.