AR Survey Results: Is Your Business Facing AR Challenges?

Announcer  00:04

Welcome to the Treasury Update Podcast presented by Strategic Treasurer, your source for interesting treasury news, analysis, and insights in your car, at the gym, or wherever you decide to tune in.

Craig Jeffery  00:18

Welcome to the Treasury Update Podcast. This is Craig Jeffery, managing partner of Strategic Treasurer. Today’s episode is titled the accounts receivable survey, inbound cash flow processing. This is taken from the modernizing AR Processing Survey Report that was underwritten with Corcentric. I’m here with Bryan Way from Corcentric. Welcome to the podcast, Bryan.

Bryan Way  00:40

Good morning. Thank you for having me.

Craig Jeffery  00:43

It’s good to it’s good to talk about data and AR and I enjoyed our prep session the other day, and there’s there’s a lot to talk about. So I’m looking forward to that discussion. So I want to start with a I’ll just give a little bit of overview on the surveys for for those who are listening in. This is a survey we do each year core centric underwrote in 2023. So I appreciate that their commitment to understanding the market and sharing information. Over 200 people took the survey, there was more than 50 questions, I don’t know that anyone’s branch made them answer more than 50 questions. 90%. Just under one in five respondents worked for organizations with less than 100 million in revenue, and 50.4%, we’re over a billion. So kind of a nice distribution of sizes of companies and industries. And it’s a global presence, of course for who took the survey. It covered practices, trends, plans, points of complexity and endpoints of pain. There’s a lot of information, if you look at the shownotes, you can see a link for downloading the report. Great report to look through whether you’re in AR whether you’re in Treasury. And even if you’re an AP, maybe even especially if you’re an AP, you can see what the other side of the equation that business transaction or business equation has to deal with. So there’s a lot of information there 10 key findings, lots more details, really well worth the read. So Bryan, why don’t we Why don’t we get started, maybe you can start us off on you know, what are some of the key pain points in the AR survey.

Bryan Way  02:28

Some of the pain points are exactly what you would expect. Visibility, right, the ability, the availability of data and reports and especially as it relates to finance professionals, treasures and setting to get the setting up plans. One of the most important findings that we I think we’re going to talk about here today is the challenging of forecasting receivables and inbound cash flows, and how that can really impact a business. And, you know, if you have a strong forecast, you’re much better off than the majority of finance professionals out there. But if you don’t, then how can you improve on that? How you can you gain some certainty and really clarify the visibility that that I just mentioned. And then there’s, you know, the survey is full of interesting facts. And one of the things I like the most is that this is now the third year of the survey. So we’re able to look at 2021 2022 and 2023 results. And, you know, of course coming out of a tumultuous year like 2020, I think there was a lot of supply chain shocks and markets have taken a little while to get back to normalcy. And it’s interesting to see kind of what that normalcy looks like now, with respect to receivables.

Craig Jeffery  03:47

When you look at the results and see the pain points, factoring that in with your experience, where are you seeing some variations? What might be different from let’s say, a smaller firm to a larger firm?

Bryan Way  03:59

Oh, yeah, that’s a that’s a good point. Correct. So, you know, large firms are going to be at especially the public ones, they’re going to be looking at quarterly reporting, and what what’s the impact of on my valuation? If, if this receivable hits my books or is on Aging, whereas a small firm, you know, especially those growing, they’re trying to, you know, make that nine month runway until their next funding round, they’ve got payroll that they need to make next Friday, or revolving credit lines that maybe are starting to dry up. And so a treasury team may say, hey, put some pressure on the sales for the receivable side of the organization or else we’re going to be out shopping banks until we can figure out how to fund our payroll and so the stresses of receivables on small firms, you know, are significant, but those on large firms you know, they’re it’s it’s much of focus cash is king. When a receivable is on your balance sheet. You It’s not as good as cash on your balance sheet.

Craig Jeffery  05:03

That’s right. I’ll gladly pay you on Tuesday for a hamburger today, you know, receivable is not the same as cash. i That’s it. That’s a really good point. Yeah, excellent. So those are those are some good distinctions between type of firms. And, you know, that extends to the language that used the sense of urgency in the cycle. So, yeah, there’s also one of the things we talked about the other day, when we were discussing some of the results, there’s stresses on various areas, the business overall, the receivables team, the FP&A, team, and Treasury. And if there’s anything else, you wanted to comment on any of those areas, and we had a lively discussion the other day?

Bryan Way  05:38

Yeah, I think one of the things, Craig, that we actually we didn’t spend a lot of time talking about is, how outstanding receivables can impact your sales organization, and how it can drive some of the friction between sales and finance that plagues a lot of businesses. You know, so finance looks at sales, and they say, cheese, I’m writing these big commission checks. What are these guys done for me lately? They’ve sold something that I haven’t turned to cash yet, right. And when a sales leader is putting pressure on his representatives, his or her representatives to go and collect cash, well, what are they doing? They’re not selling, they’re not growing the business. And so it’s getting back to that alignment of goals, which is grow the business with the right customers, right. And when there’s uncertainty around your receivables, it just creates, it throws a stick in the spokes of a well oiled business and and that tension can bubble up into ELT meetings and riffs and fights and coos. But ultimately, if you can get the sales team out of collections and focused on selling, everybody’s better off.

Craig Jeffery  06:48

What does the sales team call the finance team?

Bryan Way  06:54

Well, I can’t tell you everything that finance calls sales, but I think you know.

Craig Jeffery  07:02

The sales prevention department, right?

Bryan Way  07:06

In this end, the finance team says it if you’re selling and you’re not collecting, you’re just giving it away.

Craig Jeffery  07:12

Yeah, that’s right, exactly. I mean, those are the you know, those, those are the challenges right, done, right. Both of those things work in harmony done wrong, everyone’s optimizing for part of it. And that’s the overall business flow right now. So we’re Adji on this podcast. Well, not really. But those are, I mean, that’s, that’s really the looking at everything comprehensively. And AR is not standalone, it’s part of a business and a crucial part. Bryan, I’d love to have you just describe a little bit about what you’re responsible for, at core centric, maybe just give a real brief intro, of course center to for those that are listening.

Bryan Way  07:48

Sure, Corcentric optimizes business to business transactions. So we support clients, and both the source to pay and the order to cash side of things. And we bring together technology managed services, and trade finance to bring kind of holistic solutioning to our clients that can take the shape of bringing them together and group purchasing organizations for for sourcing opportunities, or it can be AR automation and management. We take a consultative approach with our clients. And that’s really where I step in with my role. I bring about 10 years of corporate finance background in large capital equipment sales, and in that I was responsible for revenue recognition and chasing some receivables all over the world, leveraging documentary letters of credit and other kinds of trade finance mechanisms, but in that I got a real taste for how challenging it is to just run a business, you know, day to day operations. You cannot set it and forget it, it requires management. And so with core centric, I sit with our clients and our prospects and I I do my best to understand what their challenges are and what their target business outcomes might be. And then I kind of reach into the core Citrix large toolbag and try and match up what solutions we can bring to them, and really how we can give them those results.

Craig Jeffery  09:17

Very good. And in the show notes, we’ll have Corcentric’s website for those that want to learn more about course centric, let’s shift over to the broader discussion about the needs for visibility and better forecasts. And let me say a few things about the results. You know, there’s a there’s an element of complexity that we saw from the survey. I think we all know that there’s complexity 72% of firms have two or more collection banks. So there’s, they’re spread out. And 38% have four or more banks. And so you can see as you get more and more banks, the number goes down, but still almost 40% have four or more banks, and there’s still a significant In percentages that have really, really large numbers. So that’s an element of complexity. On the forecasting side, this is a, this is one of the pain points we moved from in 2021. That was the third highest pain point. And 2023 moved to the first pain point it moved up 26% of the total 13% to 39%, identified it as their top item. And then the last item here, Bryan is reporting visibility went from number two and 2021 to number two and 2023. But it moved from 19% of of organizations or respondents identified as the top issue to 29%. So that experience to 1010 point increase and forecasting a 26 point increase. So those are that’s the context for the needs for visibility, better forecasting. What have you seen here? And how should? How should we be thinking about this type of information and the environment companies are in?

Bryan Way  11:04

Well, let’s kind of start by putting it into a real world example, Craig. I’m going to sell you a breakfast sandwich, since it’s still morning time here. But you don’t have to pay me today. You can pay me next week. Yep. Now, you can have a seven day terms. When do I expect to get to receive cash from you? Seven days. But if you don’t pay on the seventh day, now, what’s my expectation? Is a day eight. If you don’t pay on day is a day nine. Now we’re at day 14. Everyone’s asking, when’s Craig paying for that sandwich? I don’t know. I don’t have visibility into when Craig is gonna go to the ATM and make right Craig could be going through a business challenge. Greg could be on vacation Craig could have lost the invoice. Maybe I sent the invoice to the wrong folder. You know, you talked about multiple lock boxes. What do you what about when you have multiple ship twos and Bill two addresses? These are the challenges that FP&A departments face. And everybody is knocking on their door saying, what is our cashflow gonna look like next week. We know our disbursements, we have invoices, we’re good company, we’re going to pay those on time. Why aren’t our customers paying on time? Okay, now, how much is our aging? What are you doing AR team to collect on that? Are you dumping? Do you have the right contact information? What’s the reason for them not paying? What sort of credit decisions are we going to make now that this customer isn’t paying us? Craig’s been a breakfast sandwich fan? For as long as I’ve known him? Do we cut them off? Right? These are the challenges that every business that offers terms faces. And if you’re not offering terms, you really are struggling to compete in a b2b landscape. So I understand why the respondents to the survey said forecasting and visibility are so high on their list because visibility and forecasting and form for future decisions. were deep in q4 now, Craig. Everyone’s pretty well planned out for 2024. But, you know, it takes a certain amount of certainty, and especially with your cash positions to go and make those plans for the next year. Do we hire do we staff? You know, do you need to cut back and in tighten up? These are challenges that businesses face and forecasting is paramount in solving those challenges.

Craig Jeffery  13:25

Bryan, I like your example. And plus, it’s close enough to lunchtime here that I’m starting to think about that breakfast sandwich. Don’t cut me off. I’ll pay you for today’s too. You know, there’s some other challenges too on that, you know, challenges on pain may exceed billing challenges. And maybe that’s worded a bit roughly but what are you what are some of the what are some of the elements about pain challenges that may be a bigger issue than just on the bill and getting the billing right, maybe I was upset that you billed me for the wrong sandwich and I was holding up a payment for that. But what or how should we think about that?

Bryan Way  14:02

Yeah, it’s it’s not uncommon for invoices to be disputed. And there’s frankly nothing wrong with that, hey, I ordered three three units of sandwich, but he only delivered me to write the sandwiches maybe start to falter as an example here. But when when he talks about goods where you’re taking delivery, and then you get an invoice afterwards and you try and marry that up. It’s perfectly fine to say dear seller, this invoice is wrong. Now, what tends to happen is that those invoices often sit in a pile until they approach their due date. And then the buyer pulls up that invoice and says, you know, this is the I need to dispute this. Well, we’re now at net 27 of the 30 day terms, and you’ve got to dispute reissue an invoice and get it back to back to that buyer and sometimes especially Certain buying systems will trigger a reset on those terms. And so, you know, the 30 day terms that you set out, may end may turn into 60. So that’s just that’s one example of a challenge that buyers have when it comes to paying. You know, another a lot of times, there’s just inefficiencies in how those invoices are received and processed. I mean, in the year 2023, I spoke with a spoke with an AP department just a couple of weeks ago, where they’re still every day they stamp an invoice so they know which date it was, quote, unquote, ingested into their system. Now, their system just happened to be an AP clerk who looked at that invoice that day. But you know, that’s one side of the spectrum. Another is, you know, when source to pay software’s involved, and, you know, the Rebbes, the koopas, the Jagger’s the core centric platforms of the world, right, they say, Hey, I’m going to issue a purchase order out of my system, I expect an invoice to come into that system. So I can match the PIO to that invoice. Well, if you don’t deliver that invoice with the right formatting, right, you know, header fields in a certain order, you know, configured to its liking. It may not be ingested properly. And, and that can be a real challenge for sellers, especially small sellers who are doing manual invoicing, selling to big companies that use multiple different systems, right? You have to configure invoices to those buyers. And if they’re not configured, right, your chances of being paid on time, really start to dwindle.

Craig Jeffery  16:34

Use using the right technology is often seen as helping a process become more scalable, more efficient. How? How does this you know a more automated process or a modernize modernizing the overall AR process help? And where where might there still be some gaps?

Bryan Way  16:54

Yeah, so that’s a good, that’s a good question. There are a lot of electronic invoice preparation and presentment tools out there. And what they can do is they can take invoice data, and they can generate invoices that are easily ingested, they can also provide a platform to those buyers to go in and make payment whether by credit card, ACH check backs, right depending on where you are. They do tend to fall short, though, because they lack the ability to drive certainty. And so let’s say that you go and you spend a couple $100,000 on a state of the art EIP system. Again, that’s electronic invoicing, preparation and presentment. And so you think you’re you know, you’ve made your investment, you’re like, Great, I’m now in my business is now delivering invoices in a clean way. No excuses from the buyer, right? Well, anybody who has ever worked in a finance department, especially at the end of the year knows that invoices tend to sit on desks, even if they’ve come into it through a nice pretty source to pay portal will get printed out. And they’ll go over to the FP&A manager and say, Hey, this one’s 2 million, do you want to pay it now? Or should we just wait until next quarter. And so no matter how good your technology is, true business pressures and challenges can get in the way, and take that certainty right out from underneath you.

Craig Jeffery  18:21

The physical invoice may be less common than it was, but it still exists. But the physical invoice if it was there was a problem people would like you would say would put it to the side to handle later. Because they’re challenged to get things done. But that’s still in the digital world. There’s a problem. I’m going to handle that later. I’m going to get the clean stuff process first. And so it it amplifies when we talked earlier, you had mentioned a story that even if you have some of these methods to call it, buying certainty, there’s other situations that are just outside of your control.

Bryan Way  18:56

That’s right, yeah. And and the challenge with those is they can impact a $1 invoice or a $14 million invoice as has happened to a program I was working back in 2019. So a one of one of the great states of the United States, their police department ordered a large capital goods from from our company and we delivered it and they were happily enjoying it. This happened to be kind of when that police department came under the scrutiny of certain taxpayers for how much funding they were getting the pressures at their state capitol kind of kept them from paying that bill on time. So 14 million with 30 day terms stretch to 60 Stretch to 90 Stretch to 120. So this item was delivered and accepted kind of towards the end of the year. And under ASC 606 accounting when you have reasonable assurance of collectability then you can book it, but we didn’t really have that But they kind of the through the doubts up early. And so we held off on earning that revenue. And it slipped out of q4, right 14 15 million of revenue and cash moved across years. And now all of a sudden, there’s pressure from shareholders of, Hey, why did you miss your revenue numbers last year? And it ultimately just comes down to the things that are out of your control. When you issue businesses terms. There is an element of risk you take it, it’s table stakes, you kind of have to do it. But but it doesn’t mean that as a seller, you aren’t impacted.

Craig Jeffery  20:37

Yeah, why? Why was q4 so bad. And boy, you got to off to a good start q1.

Bryan Way  20:42

Right? If only everybody on Wall Street was a goldfish with a goldfish memory?

Craig Jeffery  20:51

Was it three or six seconds or something? Awesome. You know, there’s, there’s, there’s so much we additional things, so many additional things we get to talk about Bryan from this survey or what’s going on? I think we probably need to have a number of other conversations. But I wanted to, you know, as we wrap up today’s discussion, you know, what are some of your final thoughts that you would leave based on what you learned from the research? And what you know, from the industry? What are some some of your most salient points and pieces of advice?

Bryan Way  21:23

Yeah, I think this for asking that, Craig, because I think that a challenge that a lot of finance and HR departments face is that they’ll go out and they’ll look for solutions, right? Or automation or modernization, right. But what they really need is to buy certainty, and they need to buy results. And if you can find a solution or a partner, if you find out if you can find a partner who can deliver those results and can give you certainty, right, whether that’s, you know, whether you’re you’re stacking credit insurance in factoring or securitization, on top of automation solution, you know, and then tacking on business process outsourcing, right? Any combination of those things, whatever tense you know, whatever is right for your business, make sure that you’re buying those results, right. If somebody calls on you and says, I’ve got a solution that’s going to change the way you do ar say, Well, hey, here are my problems. And here’s my goals. I don’t just want to deliver invoices cleaner, I want to be paid by invoices on time, right? So think about those when you’re when you’re in the marketplace and shopping solutions. And then it’s very challenging. And every everybody has these challenges. When is Craig gonna pay me for that breakfast sandwich? It’s it’s darn near lunchtime, and he still hasn’t totally left his wallet in the car. Right? These are these are normal challenges. And you’re not alone.

Craig Jeffery  22:59

Excellent. Thanks so much. I, I really liked that, you know, instead of buying systems or solutions that should lead to the results you want. Buy the results. That’s a that’s a pretty, pretty clever way of getting to the end point. Bryan, thanks so much for spending time with me on the Treasury update podcast.

Bryan Way  23:17

Thanks so much for having me on, Craig. It’s been fun.

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