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Less Costs and More Value in Accounts Receivable and Accounts Payable

23-04-2021 7 min read

How to Save Money and Build Towards a Stronger Future for Your Business

The recent resurgence of the COVID-19 pandemic in parts of the world is evidently taking a toll on the economy. This autumn, early signs indicate, that rising level of infections and new restrictions will continue to impact the economic recovery in Q4 of 2020 and into early 2021. Businesses, therefore, must continue to focus on controlling cash and liquidity. To improve their cash position, CFOs will need to reduce costs. However, past experience shows that the best approach for long-term financial success is to combine cost reduction efforts with intelligent investments into digital infrastructure. Making strategic investments in automation and process improvements will increase the positive effects of cost reduction and help build a more efficient and resilient business for the future.

Aim for Intelligent Cost Reduction in AR and AP
The accounts receivable (AR) and accounts payable (AP) department manage cash flows, which are then monitored and reported on by the CFO and the treasury department. Faster and more efficient and agile processes in AR and AP can, therefore, greatly contribute to a better cash inflow, greater spend control and an overall improved cash and cost management. Any cost reductions need to be underpinned with a consistent strategy and a structured approach that also optimizes value. You should prioritize resources that earn the best possible return, instead of simply cutting costs for the sake of it. Start by differentiating the capabilities needed to fuel profitable growth (smart costs) from low-performing segments and inefficient processes and operations (sunken costs). Smart costs should be targeted for investment; sunken costs targeted for overhaul or elimination. Focus on the essential, finance capabilities that differentiate your business, improve customer engagement, and support you in developing new and stronger value propositions. Eliminate costs in non-essential areas that do not add value.

Four Steps for Optimizing Costs and Driving Value
How can organizations find the right way reduce costs in finance, focusing on AR and AP? By taking measures that will effectively cut cost, while benefiting your organization in the long-run. Here are four steps that will optimize costs and drive value.

  1. Determine your cost reduction strategy and align it with your digital transformation agenda

    Implementing strategic change and transforming the right operational capabilities can be difficult. Yet, there are compelling drivers for business process transformation in the current economic climate. Technology is a practical way to make strategic cost reduction possible. But it must be done in the right way.

    • Don’t go into cost reduction blindly – have a clear view of your strategy and ensure it is consistently understood across your AR and AP departments.
    • Look across the whole department and differentiate the strategically critical ‘smart costs’ from the non-essential ‘sunken costs’.
    • Align your cost reduction strategy with your digital transformation agenda, to maximize the benefit of your investments.


  2. Take a bold approach to business process design

    Cost optimization in AR and AP has a lot to do with your overall process efficiency. How manual are your processes today? Even with existing investments in automation, AR and AP often have additional potential for optimization and automation. Look for areas where processes rely on manual tasks, such as capturing information in multiple systems.

    • Are your operations repetitive and rule-based? If so, they can be automated, using intelligent process automation. Some organizations have reduced the turnaround time for cash application or invoice posting from days or weeks to hours thanks to intelligent automation.
    • How centralized or decentralized are your processes? Can you centralize processes to improve process cost and efficiency?
    • How transparent and compliant are your operations? How well do AR and AP teams work together? Be bold when it comes to redesigning business processes. Think about which areas can be automated and how digital operations can improve your performance and support remote working. This is particularly important as work from home is already the new normal in many countries and industries.


  3. Drive change by bringing together internal stakeholders and external expertise

    To drive your transformation, identify critical stakeholders in your team who can lead efforts to reduce costs and streamline processes.

    • Think about building a task force of dedicated members who know the current processes, are creative about change and committed to the project.
    • Add external expertise to your task force, such as business consultants and technology experts. Consider whether you should “buy or build” to innovate. Should new solutions be developed internally or bought from external suppliers? When it comes to intelligent automation, ‘buy’ often beats ‘make’, as standardized solutions and services can be implemented quickly and maintenance is provided by the vendor.
    • Go for end-to-end providers that can support your entire digitization process, instead of having different suppliers for your AR and AP solutions.


  4. Create a positive transformation culture

    Change can be met with resistance from employees which is why it is important to have them on-board from the start. Cost reduction can have negative connotations for employees, who might fear change or job loss.

    • Ensure that your cost reduction strategy is accompanied by a positive message for change. For instance, digitization and technology will:
      • Make it easier for your team members to work from home
      • Eliminate tedious and repetitive work
      • Allow users to focus on more sophisticated and value adding tasks
    • Cost reduction and business process transformation should be a team effort. Ask your team to contribute ideas so they are invested in the changes and process improvements are practical and effective.


Concrete Measures for Cost Reduction in AR and AP
If we look at the business side, here are some concrete best-practice measures that organizations can take to reduce costs in AR and AP and add value with intelligent automation:

  • Automate cash application: Highly repetitive and rule-based, the cash application process is ideal for automation. Information from remittance advices can be automatically extracted and used to clear open AR items. Intelligent software can complete these previously time-intensive manual tasks in seconds, not hours. The process of applying cash can be further optimized with machine learning capabilities and matching powered by artificial intelligence.
  • Optimize AP processing: Reduce costs in AP by automating the invoice capturing process, making time-intensive and error-prone manual data entry obsolete. Speed up the process by automating the invoice processing and approval procedures will a completely digital and transparent process. This will ensure you can pay your suppliers early and reliably, and benefit from available discounts.
  • Simplify payment requests: Setting up manual payments is cumbersome. Using digital technology you can streamline the payment request process and offer instant payment options, so your customers can receive payments right away. This saves your team significant time and effort, increases transparency into these payments and lowers your transaction costs.
  • Prioritize payment security: Establishing the best possible connectivity to banks will ensure that payments are completed without delays and lower transaction costs. Make sure your payment processes are secure to avoid losing the money you gained through cost reduction to fraud.

Conclusion: Think Strategically and Set the Right Priorities
The survival and success of your business, especially in uncertain times, depends on your capabilities to transform outdated or inefficient business processes and reduce costs. To make this work, you have to think strategically and set the right priorities. Intelligent cost reduction in AR and AP starts by aligning cost to strategy. Invest in differentiated and essential processes and cutting back or eliminate the others. Understand what really adds value in your department. Determine whether current tasks or activities can be performed much better, faster and more cost-effectively by doing them differently. Effective strategic cost reduction will help you secure liquidity in times of crisis gain a competitive edge in times of recovery.

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