5 Steps to Redesigning the 2022 Budgeting Process

5 Steps to Redesigning the 2022 Budgeting Process

The COVID-19 pandemic has changed the entire economic situation of the world. It has affected all sectors of the economy and forced companies to adopt a revamped budgeting strategy. As we come out of the pandemic but enter a world of economic uncertainty, businesses are once again faced with the challenges of redesigning the budgeting processes – this time armed with the lessons learned from the pandemic.

Every business will have some strategic goals that it aims to achieve. A descriptive road map detailing performance indicators and parameters is necessary to make this possible. Re-imagining the budgeting process for the new way businesses are run makes it possible to unlock deeper insights that can help businesses adapt to changes.

5 steps CFOs can follow to remodel their budgeting procedures for 2022

A perfect budget is a difficult thing to achieve for any organisation. And with the volatility of the current global market, a “perfect budget” might not even exist. But you can have a better budgeting process by following a few simple tricks. Some of them include:

1. Pressure-test scenarios

COVID-19 surely pressured many companies to revamp their strategies in all areas of business. Businesses have learned to make strategies based on dire assumptions and worst-case scenarios. While the pandemic has subsided a little, recent warnings of an economic downturn make it even more crucial to reanalyse and stress-test the decisions, scenarios, and assumptions made at the height of the pandemic.

Every different department in the organisation, be it production, marketing, or sales, should be on the same page. They should have a common understanding of distress response and recovery.

Evaluation of the previous assumptions

The foremost step to creating a better-performing budget is to evaluate what actually transpired during the pandemic and previous economic crashes. The finance department should evaluate which of the scenarios they predicted materialised. They should also analyse the effect of their initiatives on the various performance parameters of the company, like revenue, pricing, competition, and sales volume.

One of the major issues companies faced during the pandemic was the closure of traditional, physical stores. Several companies invested in online sales and marketing and opened online stores to keep their businesses afloat. Now, in most places, offline stores are becoming functional. This means that finance departments and CFOs should devise strategies and assumptions focusing on real-time elements. They should evaluate the increase and decrease in sales volume in the previous months and if the current trends will hold for longer periods of time.

Individual stress tests

It is also good to carry out an independent pressure test for various strategic plans of the company. This will give the managers a good idea of which of the plans can be pursued successfully. The stress test should be done individually for all departments of the company, like finance, sales, and marketing. This will help you to determine the steps you should take in individual departments to achieve the set goals.

2. Consider zero-based budgeting

COVID-19 saw many companies adopting, albeit reluctantly, a zero-based budgeting strategy to substantiate expenditure and secure business continuity. The same strategy can be continued in the post-pandemic times to have a better performing budget.

During the pandemic in 2020, the question that business managers asked changed from whether to switch spending to how much to spend and where. Numerous companies reallocated their funds to areas and activities they considered important. For instance, hospitals have started spending more on telemedicine rather than on travel budgets and conferences. This made financial managers realise that budgetary financial allocations do not have to be as rigid as they once were.

So, while designing a budget for 2022, you need not allocate money for activities you do not plan to do in the coming year, like real estate or travelling. This amount can be reallocated to more important and critical tasks that can help the business succeed in the long term.

5 steps to reimagine 2022 budget

3. Build flexibility into budgets

A flexible budget is a budget that changes based on production levels and revenue. Flexibility will allow you to make changes to the original budget plan of your company based on actual production and sales volume. There are several advantages to having a flexible budget. Some of them include:

  • There can be abrupt changes in the market that can change manufacturing costs drastically, affecting your revenue. By having a flexible budget, you can include these changes and upgrade your budget.
  • Real-time information can be used to update a flexible budget at any time. This will help you adjust expenditures and revenues whenever some new changes arise.
  • Some businesses are seasonal, which means you might incur high inventory and labour costs and high revenue during peak months. These might be considerably lower during off-seasons. You can make these adjustments in your budget properly if you are using a flexible budget.

4. Maximise finance team expertise with high-priority projects

The pandemic has totally changed the way a finance department works and this change will prove to be a critical point of concern for businesses moving forward. In economic recessions, such as the one experienced during the pandemic, businesses needed people to work faster, solve high-priority issues instantaneously, and pitch in to help irrespective of their specialisation. This mounting work caused a huge amount of stress on the finance teams. The managers can allocate work based on their priorities to avoid unnecessary pressure and burnout.

Using digital tools can help reduce the pressure on the finance teams to a great extent. Accounting software and accounts receivable automation, for instance, can prevent efficient teams from doing mundane tasks such as generating and sending invoices. B2B digital payment platforms also take a huge load off finance teams since they do not need to manage each facet of the payment system manually.

5. Revise the decision-making process

In this post-pandemic era, decisions cannot be made unilaterally by company heads. The CFOs should understand that input should be taken from managers at all levels and departments before making a strategic decision. The finance teams and CFOs should be transparent about the performance indices relevant to the budget and other relevant financial strategies. These budget plans and economic goals are the factors that drive individual and company performance and should be monitored carefully. Since traditional methods will not hold much in the post-pandemic era, CFOs should rethink their incentive strategies to motivate employees.

Companies can also resort to faster decision-making by organising a small, highly-skilled group of employees to make decisions during emergencies. The business analysis meetings can also be abridged by focusing only on important topics like trends, opportunities, and risks.

How to get started with the new budgeting models

Budgeting models can be reimagined by CFOs to create strategic plans that allow flexibility and can improve the revenue of the company. There are two major tasks involved in making a budgeting plan:

  • Reviewing the previous scenarios and assumptions and conducting pressure tests on the revised strategies
  • Converting the revised strategies into an actual budget.

CFOs can assemble a qualified team to complete this process. Both these tasks can be done in parallel. But there should be an understanding between different teams, especially when there is a major shift in strategies.

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The post-pandemic years continue to be a challenge for every business. It has forced numerous businesses to remodel themselves and their budgets to stay relevant and strong in the changing world. Companies should implement the lessons learned during the pandemic and aim to develop financial strategies that can survive in the long term.

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EOFY Best Practices Checklist for SMEs

EOFY Best Practices Checklist for SMEs

While the entire year is packed with to-dos for SMEs, the end of the financial year (EOFY) can be particularly hectic for business owners. From reporting your business’s financial position to claiming tax deductions and everything in between, EOFY calls your attention to a number of business aspects.

If you can cut out the stress, you will find that this time of the year is also a great window into past activities. It’s a great time to reflect and do a post-mortem of all your financial decisions to know what worked and what did not. You can plan and strategize your next move and implement the required changes.

This blog brings a checklist that SMEs should consider to make the most of EOFY. These tips should help ensure nothing has been overlooked and that you are prepared at the start of the next financial year. 

The Basics

First and foremost, you need to get all your business’s financial accounts ready for EOFY. Ensure your Business Activity Statements (BAS) are accurate and updated. Here are some considerations you will have to make during EOFY:

1. Payments

Review payments you have made before year-end that relate to the next financial year

2. Invoices and liabilities

Review invoices received and payments made post-year end and ensure liabilities prior to the end of the financial year are accrued

3. Leave liabilities

Update long-service leave and annual leave liabilities.

4. Wages and payroll

Accrue any wages to be paid after 30 June but relate to pre-30 June, and recognise prepayment of wages made before 30 June that relate to post-30 June

5. Government grants

Update records of government grants, including all documents for reporting to the government.

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Sign off all liabilities and statutory obligations

During EOFY, you will have to sign off all liabilities. Besides current liabilities towards parties that conduct business with you regularly, there are also statutory obligations that you will have to meet during this period including:

  • Complete company tax calculations
  • Finalise GST accruals
  • Payment of payroll tax to the state revenue office
  • Superannuation liabilities

Inventory

EOFY is when you write off damaged/missing stock and spring clean your warehouse. It’s important to note that the EOFY presents a great time for businesses to stocktake and align records with your company’s physical inventory. 

Stocktaking is essential for small and medium enterprises because it helps owners ensure that they have enough inventory to fulfil orders and that the quality is saleable. The process becomes crucial in negotiating large contracts and wholesale deals. Taking proper stock of your inventory helps to meet the needs of customers who are looking for immediate purchases. 

Assets

The EOFY is the time when you take stock of all your fixed assets. You will have to update your fixed asset register and provide it to your accountant to reflect any changes in your accounts. Some important considerations while looking at your fixed assets include the following:

  • Capitalising assets that your business acquired during the financial year;
  •  Eliminating assets that were disposed of during the financial year;
  • Evaluating the lives of your fixed assets and deciding whether any adjustments are required in their expected useful life by checking their current condition; and
  • Ensuring the accurate calculation of accounting and tax depreciation.

Tax Deductions

Your business can get tax refunds and exemptions from the government, provided you meet specific conditions under taxation law.

However, there are some considerations to keep in mind:

1. Write-off bad debts

You will have to write off any bad debts or unsellable inventory to avail of a tax deduction. 

2. Incentives

You will have to find out how many R&D incentives you can get from the government. 

3. Review deferred tax

If you prepare your financial statements, either to meet regulatory requirements or other obligations such as bank agreement requirements, you will have to review your deferred tax.

Audit Review

If your business conducts an audit during EOFY, you will have to engage with the auditor regarding accounting treatments to discuss and resolve issues promptly. The overall purpose of conducting an audit review is to ensure that your business’s financial statements are free from errors and material misstatements.

Cash flow management

Cash is the lifeblood of businesses, and cash flow management certainly takes a crucial spot during EOFY. By taking care of this function, you will know whether your business has sufficient funds to operate smoothly for the next financial year. Modern-day businesses depend on accounts receivables automation and other software solutions to keep tabs on money movement.

Proper cash flow management ensures you have the liquidity to pay your employees’ salaries, meet regular expenses, and invest in your business growth and expansion.

Conclusion

There’s no doubt that the EOFY can be a stressful time for small- to medium-sized businesses. However, you can get over much stress with proper preparation and enough foresight. 

When you define your plans clearly and execute them systematically, you will be able to make the best use of your budget and meet compliance norms. Leveraging robust accounting tools and working with the right professionals can ensure your EOFY goals are met and help you transition seamlessly to the new financial year ahead.

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How to Choose the Right Accounts Receivable Automation Software

How to Choose the Right Accounts Receivable Automation Software

There has been a significant shift in the functioning of businesses in recent years. As more and more people started working remotely, the challenges of cash flow management and working capital optimisation have become apparent.

Legacy accounting systems have also become ill-suited for managing business continuity in such a scenario. These systems could not provide accounts receivable teams visibility, transparency, and flexibility for cash management and payment collection. As a result, businesses worldwide have started adopting modernised accounts receivable (AR) processes.

Manually managing accounts receivables is not only labour-intensive but also quite time-consuming. A comprehensive AR automation software will facilitate the digital transformation of your business, so it is crucial to choose wisely. 

In the following sections, we will look into the challenges of completing AR processes manually. We will also provide a step-by-step guide for narrowing down the best AR automation software for your business. 

 Challenges of Manual AR Collections

Most businesses have an Accounts Receivables policy in place, which lays down the ground rules for payment collections and the process of billing. However, in executing this AR policy, most businesses make mistakes. Small mistakes can lead to overdue invoices, resulting in cash flow bottlenecks that drain the capital needed to grow the business, hire new employees, and buy new equipment.

Here are some of the other challenges of an inefficient manual AR collection process –

1. Cash flow management

Tracking how much money is coming in and out of your business requires analysing cash flow changes which can be time-consuming. Cash flow management involves the following:

  • Tracking and posting payments
  • Management of the payment information
  • Applying cash

It takes considerable effort and time to send invoices and receive payments using manual processes. On top of this, if the customer does not pay on time, the wait time can put additional stress on your budget and cash flow. 

Reconciling payments with a manual AR process is another challenging aspect of cash flow management. Because the payment information comes in different file formats, it must be matched manually with corresponding payments. Your team might have to spend hours synchronising data and reconciling it with outstanding accounts receivable. Even if you hire additional staff for the AR processes, a manual system will always be error-prone and sluggish. 

Adopting an AR automation software is crucial if you want to see efficient reconciliation. AR automation facilitates the automatic sending of invoices on a scheduled date, so you don’t have to worry about forgetting to send invoices on time. It also includes payments automation that automatically reconciles payments and attaches them to the correct invoices.

2. Data Transparency

Another time-consuming task in the Accounts Receivable (AR) process is investigating and resolving disputes around unexpected payments. The manual management of the process makes it all the more difficult. Using an AR automation tool will help you avoid all these issues.

AR automation is always data-based, so internal teams and customers get complete transparency and visibility into the agreed and owed amounts. Thus, the automated platform will essentially work as the single source of truth on information about all open receivables. Minimising errors and avoiding data duplication contribute to the timely resolution of any form of dispute in collections.

3. Credit management

As a business, you would always want to ensure that you extend credit to customers who are diligent with their payments. However, evaluating the right people for credit extension requires visibility into their behaviours and payment history. Determining the creditworthiness of individuals can be another time-consuming task and costly if you are to hire credit agencies to do it for you. 

An automated AR system helps manage credit risks. With Modern AR automation platforms, you can access business credit scores within the system without subscribing to a separate credit reporting service. This will allow you to look into the customer’s payment behaviour – are they usually a little late on a payment? Do they pay the full amount? Equipped with the necessary information, you will be able to decide which accounts need closer monitoring and which ones need more lenient handling.

4. Payment collection

Another major challenge with manual AR collections is chasing the customers for payments. The traditional methods of collecting payments require a lot of time, energy, and resources. Your AR teams would have to send payment reminders to the customers through dunning letters or by calling them. 

Besides distracting your team from other high-value activities, repeated calls and emails can also sour your relationship with the customers. It is essential to work smarter using AR automation software in such a situation. Rather than hounding all your customers, AR automation software will guide you to pursue the most at-risk accounts. Modern AR automation also integrates with online payment platforms so your customers can pay you quickly through multiple digital payment options. The more you lessen the friction on how and when customers can pay you, the easier it is to receive those payments.

 
Related blog post: Modernizing B2B Payments For the New Normal
 

how to choose the right ar software infographic

Step-by-step guide in choosing an AR automation software

Choosing the right AR automation software will help you overcome the challenges mentioned above. To derive a better and quicker return on investment (ROI), you should ensure that your chosen AR automation tool can meet all your unique requirements. Here are the basic steps involved in selecting the best AR automation software for your business.

Step 1: Take time to understand the pain points of your AR team

Before you start researching the various options for AR automation software, it is important to first connect with the team members who the new solution would directly impact. 

The first step in choosing the right AR automation tool is to understand the main challenges faced by your team members. Understanding their requirements will help you set clear objectives about what you want from an AR automation tool. It would help if you also considered any existing tools your teams and colleagues use to ensure that you do not duplicate the effort. You will also be able to find out why the current solutions cannot meet the needs of the teams.

Here are some critical questions you can ask in this step:

  • What are the major bottlenecks in the AR process?
  • Are a significant number of clients turning bankrupt?
  • What is the error rate in reconciliation?
  • How much time is spent on invoicing?
  • How are collection calls made?
  • How much is your business losing because of these bottlenecks?
  • What issue would the team like to resolve with the new AR solution?
  • Are the current AR-related issues because of a gap in knowledge, technology, etc.?
  • Who are the other internal stakeholders included in the evaluation process?

With these questions, you will identify which AR processes need to be automated most urgently to improve the system’s efficiency.

Step 2: Research for new AR automation software that aligns with your needs

Once you have identified the gaps in your AR process, you need to look for vendors providing AR automation solutions that will help you plug those gaps. Good AR automation software solutions will allow you to automate the AR workflows while also providing options for customisation. 

Key features to look for in AR Automation software:

  1. Auto-generation of invoices and auto-delivery of invoices and reminders via emails and SMS.
  2. A digital payment platform for your customers that is accessible 24/7
  3. Option to process multiple payment methods like checks, direct debits, and credit cards.
  4. Facility for customers to schedule payments or pay instalments.
  5. Tracking the mature receivables categorised based on the number of days outstanding.
  6. Automatic ranking of outstanding accounts (based on amount and days overdue)
  7. Online credit application for efficient client onboarding
  8. Credit score insights to help you plan your next course of action in extending credit terms to customers.

When selecting an AR solution from the various options available, examine the following:

  • Whether the AR solution aligns with your values and unique goals.
  • Whether the AR solution prioritises customer experience in the process.
  • Whether the AR solution provider has any previous experience in your industry or type of products.
  • Does the AR solution provider understand the regulations that will impact your business?
  • The strategic investment outlook of the AR solution provider for the next 3-5 years.
  • Will the new AR system integrate easily with the other IT systems in the company (and those of the partners’ too)?

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Step 3: Ensure your success after implementation of the new AR solution

While choosing a new AR automation solution, you also need to consider what your partnership will look like post-implementation.

AR Software post-implementation checklist:

1. Customisation options

 There can be times when a one-size meets all AR solution will not work for your company, especially when the existing systems are complex. To get the maximum value from your AR process, you need to find a solution that comes with customisation options.

2. Excellent customer service

Another critical thing to look for is your software provider’s track record of excellent customer service. A provider committed to improving your experience with the software and your interactions with them is a big part of the equation to ensure your success with AR automation.

Unlock better Accounts Receivables collections with ezyCollect.

If you are looking for a smarter way to manage your B2B accounts receivables processes, ezyCollect AR Collection Software is your choice. ezyCollect’s robust system will help you get paid faster while accelerating your cash recovery rate.

Book a demo today, and let our AR automation experts walk you through solutions for your business.

The Importance Of Financial Reporting And Analysis

The Importance Of Financial Reporting And Analysis

With the End of Financial Year (EOFY) fast approaching, SMEs are now starting to prepare financial reports. But more than a mandatory report to be submitted to the taxation office, financial reports play a critical role in building a successful business.  Financial reporting and analysis offer insights into financial data that will help you make better business decisions, eventually improving the business’s financial performance.

We’re providing you with a comprehensive guide to help you understand how crucial financial reporting and analysis are to your business. In this article, we will explore the importance of financial reports and how they benefit different business stakeholders.

What is Financial Reporting?

Financial reporting is a standard accounting practice that documents the company’s financial data. This data helps companies understand their financial health and performance in a specific period. Based on the report, they can make informed business decisions.

Financial reports are useful for businesses and for, investors and banks. Based on these reports, an investor or a bank invests or gives loans to a company. Suppose you plan to expand your business, and a bank will grant a loan based on your company’s financial report. If the company is financially healthy, then you can expect a loan for your business expansion.

How are financial reports generated?

The use of spreadsheets for financial reporting is widespread across businesses worldwide. However, spreadsheets can fall short of capabilities to generate efficient financial reports as a business grows and more users, data, and formulas are added to the reports. Financial reporting has become more efficient and sophisticated thanks to digital technology.

More and more businesses are now adopting the use of ERP platforms to streamline their accounting, automatically generate financial reports and even provide data-backed insights. Integration with other solutions, such as Accounts Receivable automation, further improves accounting software’s capabilities to create fast and accurate financial reports.

Types of financial reporting

1. Income Statement

An income statement or profit and loss statement essentially show a business’s loss or profit during a specific period. It’s a summary of key sales activities, costs of production, and any other operational expenses within the accounting period. This statement aims to understand if the business is making any money or suffering losses.

2. Balance Sheet

A balance sheet provides an overview of a company’s overall assets, liabilities, and stakeholders’ equity. Broadly, the balance sheet reflects the financial health of a company. By analyzing this sheet, the company’s management can see where the business is heading.

The balance sheet is not only useful for the management but also for investors. By assessing the balance sheet, investors can form an opinion on whether to invest in a specific company or not. The sheet has all the vital information like the company’s finances and other data to help them make an informed investment decision.

3. Cash Flow Statement (CFS)

A Cash Flow Statement (CFS) documents the amount of cash coming into the company and the cash flowing out of the company during a specific period. The statement includes elements of both the income statement and balance sheet. CFS is critical because it tells the business owner or management about the company’s cash position. Businesses need sufficient cash all the time. They require cash to pay expenses, loans, taxes, and equity purchases. A cash flow report tells if the company has sufficient cash for carrying out such activities.

Now that we have seen what financial reporting is let us explore some benefits of financial reporting.

financial reporting benefits infographic

Benefits of Financial Reporting 

1. Helps In Effective Debt Management

The poor management of debts can be disastrous for any company, whether small or big. When it comes to debt management, several financial reporting platforms are available that will help you track your company’s current assets, current liabilities, accounts receivables, and liquidity. AR automation software provides data on your customer’s credit scores that can help you gauge how to manage debts effectively.

2. Trend identification

Financial reporting helps identify seasonal trends or cycles that can help you plan ahead. Understanding trends and the historical context of numbers empowers you to improve your business’ performance effectively.

3. Real-time insights

Updated financial reporting provides you with real-time insights into your financial health. Thanks to advancements in technology, access to real-time data are possible and provides you with the ability to take action to either correct issues or take advantage of opportunities. Cash Flow statements, for instance, provide you with information about the company’s availability of funds which will help you ensure you always have money to cover payments.

4. Liabilities tracking

Managing liabilities is paramount for any business, especially if the business is looking to apply for a bank loan for expansion. Defaulting loan payments is seen as a red flag by banks that can reject the application for a loan. A financial reporting template allows for exploring current liabilities. Based on the data, the company can determine if it is required to reduce liabilities before applying for a bank loan.

5. Compliance

Complying with the rules is essential for the survival of any business. Maintaining updated financial reports help your business comply with the regulations set by the governing body.

6. Cash Flow

Management of cash flow is essential to any business. If you face challenges with the cash flow, financial reporting metrics will let you know the root cause of the problem.

With benefits covered, let us get to the crux of the topic – The Importance Of Financial Reporting.

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Why Is Financial Reporting Important?

Financial reporting offers a wealth of insight into financial data that helps make better business decisions. Apart from this, there are many other reasons. Let us look at each one of them in detail.

1. Taxation purposes

The biggest reason for performing financial reporting is taxes. For instance, you need to lodge EOFY tax returns and other financial reports in Australia. These reports are mandatory by law to ensure that a company pays its fair share of taxes. Before filing taxes, an audit is also necessary, and accounting and auditing firms review financial reports to ensure accuracy and credibility.

2. For Attracting Investors, Bank Loans

Financial reports are critical for attracting investments. If you are looking to expand your business, the investor will surely ask for the company’s financial report. The investors will examine the report to see how the company is performing. Is it earning profits? Or is it at a loss? How is the company managing its cash flow? These are some key indicators that investors examine. 

If your company’s financial health is not optimal, no matter how excellent your product/service is, most investors will decline to invest in your company. Similarly, when you apply for a business loan from a bank, the bank examines your company’s financial report before lending the loan. Based on the information gathered from the report, banks can determine if the company can repay the loan.

3. For Better Business Decision-Making

A financial report is one of the essential tools for making better business decisions. For instance, if you want to open a new branch, a financial report can help you gain insights. You can assess crucial information like the company’s cash flow to identify if you have enough capital to expand and maintain solvent for daily operations. However, it is necessary to have detailed financial reports based on accurate data to make such decisions. 

In a survey conducted by Deloitte, most respondents identified an insufficient level of details as the main issue in financial reporting, as this can affect financial performance assessments. The advent of modern accounting software has mitigated inaccuracies from old financial reporting techniques, leveraging data and automation to reduce errors in financial reports. These software solutions often have an intuitive dashboard that provides businesses with critical information in an easy-to-understand format to help them make better financial decisions.

4. Builds Trust With Stakeholders

Financial reports help in fostering trust with stakeholders. Accurate and transparent financial reports – backed by data – help convince stakeholders about your business’ performance. Leveraging technology helps build detailed, accurate reports that provide your stakeholders with the information they need to understand your business’s financial position and performance. 

Who Uses Financial Reporting and Analysis?

Throughout the article, we’ve often mentioned several entities that can benefit from financial reporting and analysis, such as investors or lenders. Here is a list of other entities.

1. Business Managers

Business managers use financial reports to help them track and measure the performance of an organization. With deeper insights, they can then devise intelligent strategies to improve the company’s financial health. 

2. Tax Agents And Various Government Agencies

These groups use financial reports to check if the businesses comply with tax regulations. Financial reports are also reviewed as part of the auditing process.

3. Customers

Customers use financial reports to judge whether a company is reliable to do business with. They examine the statements to ensure that the company is financially healthy and determine whether it can stay for a long period.

Conclusion

Financial reporting is essential for any business, regardless of its size. It helps you better understand the company’s financial performance and enables you to make the right decisions that help in the growth of your business. 

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The Human Side of Accounts Receivables Automation

The Human Side of Accounts Receivables Automation

Accounts Receivable automation is becoming increasingly popular in the finance sector, having the ability to replace manual processes – from invoicing to credit risk management – to save time, prevent errors and reduce costs.

The global AR automation market was valued at 1891 million USD in 2020 and will be worth 3861 million USD by 2026. That is a CAGR of 12%. An increased focus on cash flow improvement and reduced accounting time are the major drivers behind the growth of this market.

Despite all the latest technologies, the human touch is still essential for any financial automation endeavour. Let’s take a closer look at how automation can emphasize the importance of the human factor in accounts receivables. 

How does automation uncover the human side of accounts receivables?

Automation offers numerous benefits to the accounting world, from digital payments to accurate projections to valuable data helping organizations make more informed business decisions. 

Some feel that the shift from manual bookkeeping to automation will reduce the need for AR staff. However, automation creates clean and accurate books, helping AR staff be more productive and contributing to customer retention. 

Implementation and adoption

Businesses use many different accounting tools for bookkeeping, reconciliations, revenue forecasts, etc. However, if you use an automation platform, it will be only as effective as the data you feed into it. The more accurate the data goes into it, the more accurate the output will be. This is precisely where you need the human touch when implementing an AR automation solution for collections, B2B payments, or more. 

 Without some amount of human intervention, you may not get the full value from automation. An AR team is still needed for better adoption and implementation of these platforms.

 

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Data-driven decision making matched with human intuition

Business leaders make critical business decisions based on data and counsel from key stakeholders. A key benefit of automation is that it makes it possible to create a dashboard with key metrics available in one place. Decision-makers would only need to look in one place for financials, sales data, and more.

Automation can help consolidate data – such as credit score insights – in an easy-to-understand format. The final decision still rests with the business leaders. Some leaders may use their intuition in making business decisions, but in the current market conditions, all businesses prefer to make data-driven decisions. With an automation platform, good data helps leaders make good decisions.

Technology can work wonderfully for the things they’re created for, but its programming is still limited. When it comes to navigating complex and unexpected events, it is hard to replace genuine financial experience. 

A tool to build meaningful customer relationships

Automation is perhaps the most popular when it comes to sending out communications. It is easier to set and forget notifications and reminders through various channels, not to mention cost-effective.

But while automation has created efficiencies in communication, this doesn’t mean that businesses should solely rely on it. When it comes to connecting with customers, the human touch is irreplaceable. It is, therefore, necessary for businesses to look at automation as a complementary tool that can unlock areas of focus in communication.

An AR automation platform, for instance, can tell you which customers may need a more personal approach through recorded data on credit scores and payment behaviour. Finding this information is more accessible, but you still have to call your customers to understand their issues with paying on time. Direct communication is necessary to help you make decisions that can impact your cash flow.

With automation becoming so deeply ingrained in our day-to-day lives, it is refreshing for customers to experience genuine connections with their business partners. By leveraging technology, you can create deeper customer relationships that help your business in the long run.

Conclusion

There’s no question that AR automation can drive business efficiencies. The emergence of advanced technologies like Artificial Intelligence, Machine Learning, and Blockchain is likely to transform further the finance and accounting sector further, like many other industries worldwide. However, to truly get the benefits of these tools, you will need some amount of human touch. Combining the accuracy of automation with human experience is a winning recipe.

Ready to start your business’s digital transformation?

Let digital technology change the way you do business for the better. Book a free demo of ezyCollect and discover how AR automation and B2B digital payments can work for you.

The CFOs Guide to Digital B2B Payments

The CFOs Guide to Digital B2B Payments

Digital payments are the key to unlocking optimisations in payment transactions. Digital payments have been the way for many B2C transactions for years but haven’t gained the same prevalence in the B2B space until recently. With the COVID-19 pandemic accelerating e-commerce and increasing customer expectations toward using technology, B2B organisations will inevitably march toward digital payments.

But the march has been slow – the reality is not many companies have adopted B2B payment automation yet. A study published in the Next-Gen Digital Payments Report shows that 51% of the B2B respondents are yet to digitalise their accounts receivables and accounts payables, which means more than half of the respondents do not have a solid payment digitalisation plan.

Here, we discuss what digital B2B payments are, the challenges of B2B payments and how you can start to leverage digital technology to improve your payments process. 

 

What are Digital B2B payments?

Any payment or receipt of money for goods or services made between two businesses using an electronic medium is a digital B2B payment. B2B payments can be a one time or recurring transaction depending on the contractual agreement between the buyer and supplier.

Digital B2B payments include online payment platforms and use technologies such as APIs for integration with other software and automation to streamline workflows. Advanced technologies such as blockchain and artificial intelligence (AI) are also making their way into the B2B space. It won’t be long before we see these technologies further redefine digital payments.

Economies worldwide recognise the importance of digital technology in improving business efficiency and profitability. In Australia, the latest tax break incentive for businesses adapting digital technology – including payment systems – emphasised just how crucial it is in building healthier businesses.

Additionally, giving your B2B clients an automated payment system will ensure you:

  • Receive your money on time, every time. 
  • Protect your financial details and the safety of your clients. 
  • Have less to worry about defaulters. 
  • Have sufficient funds to ensure you can supply your goods to your buyers.

 
Related blog post: Modernizing B2B Payments For the New Normal
 

B2B payment methods

There are different options available for businesses regarding payment receipt methods. Here are the most-commonly used B2B payment methods with their pros and cons.

Paper cheques 

Paper cheques are still one of the most popular payment methods today. It is much safer than direct cash transactions, and they are also the easiest to adopt – being used for years as a standard B2B payment method.

Pros:

  • Cheques are a great way to encourage conservative or old-school companies who haven’t digitised yet, to do business with you.
  • Since cheques don’t charge convenience fees, they will be inexpensive for your clients.

Cons:

  • Clearing a payment using cheques is time-consuming.
  • Start-ups and businesses run by millennials and younger cohorts may not be as familiar or interested in paying you through paper cheques because they’re accustomed to digital payment systems.
  • Both the paying and receiving companies need always to keep a minimum balance at all times.

Direct Debit

Direct Debit authorises another party to collect payments from an account when they are due by completing a Direct Debit Authority Form. Direct Debits are used for any kind of payment, but it’s most often used as a safe and convenient way to make recurring payments.

Direct Debit used to be the privilege of bigger and more established businesses with many customers, but technology has democratised and simplified the systems involved. Now any business – big or small – can benefit from the Direct Debit payment’s speed, convenience, and security. 

Pros:

  • Automatically collects payments from customers, so payments are never forgotten or delayed.
  • Direct Debit payments integrated with your accounting system can save you a huge time in reconciliation.
  • Cost-effective – Direct Debit transactions fees are much cheaper than credit card fees which charge around 3-5% for transactions.

Cons:

  • Possibility of payments not being collected due to insufficient funds.
  • There’s a certain level of trust required for customers to authorise direct debits. Customers might need some time to feel comfortable approving suppliers to collect automatic payments. 

Wire transfers

A wire transfer is a bank transfer wherein your client has your bank account details, and they make the payment directly from their account to yours. 

A wire transfer is different from a Direct Debit in that it is not limited to the currency of a business’ local banking system. Wire transfers are also usually processed within the same day, whereas Direct Debits can take a couple of days.

Pros

  • Wire transfers help you receive same-day payments.
  • You can receive wire transfers from both domestic and overseas bank accounts.
  • Wire transfers are safe, and you can track your receipts using the ID generated for each transaction.
  • For businesses dealing with international clients, wire transfer payments can easily be converted to your local currency.

Cons

  • Wire transfers are expensive compared to ACH or Direct Debit due to processing fees, service tax and foreign currency conversion fees (if applicable). 
  • If your client wants a refund, you will be unable to reverse the transaction.
  • If your payment receipt transaction ID becomes known to someone else, it is easy to manipulate the wire transfer.

Credit cards

Credit cards are a borrowing mechanism that banks give both B2C buyers and B2B companies. Any business using a credit card can borrow money from their bank to make payment to you for the products/services they have purchased from you. But you will always be assured of your payment since the bank pre-pays you on your buyer’s behalf.

Many banks offer credit cards that are specifically designed for business payments. These cards also offer desirable deals that enable users to waive certain fees, earn bonus points, allow business savings and avail of a cash advance facility, amongst other features. 

 

Pros

  • Easy set-up for suppliers and adaptable to digital payment platforms
  • Convenient to use for your clients.
  • You receive payments quickly since your clients borrow money from their bank to pay you.
  • Banks always share a credit card receipt report with their B2B clients, helping you track who made payments to you and when. You can also identify any clients who have defaulted their payment to you.

Cons

  • Merchant fees can be expensive. However, there are online payment platforms that will let you surcharge the fees at checkout, or absorb all or part of the fees.
infographic of b2b payment methods

B2B Payment Terms

B2B Payment Terms sets the payment agreement between you as the supplier and your clients. While creating a standard agreement across all of your clients is ideal and is the simplest option, the reality is each of your clients may require different terms depending on their financial situation.

Instalments

Instalment payments allow your customers to choose a plan and pay in portions rather than paying full price up-front. With this agreement, you can receive consistent payment amounts to your business over the time period you’ve agreed upon, thereby reducing your financial risk by not waiting for your client to pay the total amount.

You can sync your instalment payments to a milestone met. We’ll touch upon milestone payments later in this article. But to illustrate, let’s say you receive the first instalment of your entire bill when you deliver the first batch of raw materials to your clients. Then you continue to receive each instalment as subsequent deliveries are made. You can choose even to charge interest on instalments, but that’s not mandatory. An equated monthly instalment (EMI) is an example of a commonly-used B2B instalment scheme.

Instalments are essentially a flexible payment method and can help with customer retention. You can offer your clients the payment technologies mentioned earlier to make each instalment payment.

Milestones

Milestone payments are frequently used in the services industries and help buyers build trust with suppliers. Payment upon delivery is a good example of milestone-based payment. For suppliers, milestones help you retain your end of the deal—you receive the payment only when you make any progress to the service/product you have to deliver.

Net Terms

In B2B transactions, it’s common for suppliers to extend their payment terms to their customers – called Net Terms. Net Terms allow businesses to pay for orders within a certain period after invoicing instead of paying it upfront.

The most common set-up is for businesses to be allowed to pay 30, 60, or 90 days after they receive goods or services, with no interest. From a buyer’s perspective, this can be beneficial to their working capital as they have a chance to resell goods or to use the raw materials for manufacturing and send the goods to distributors before the bill is due. Some suppliers may even offer discounts if the invoice has been paid before they are due.

As net terms are important to buyers, it will do well for suppliers to offer them. Suppliers benefit by providing a more attractive payment scheme, thus improving customer retention, and that is reflected in an improvement in sales and an increase in order volume.

However, Net Terms can also affect the supplier’s cash flow. The supplier must monitor payments via Accounts Receivable automation to ensure that payments are made on time as agreed upon by the two parties.

Challenges of B2B Payments

Choosing a B2B payment option isn’t always easy. Here are a couple of challenges that you need to look out for when evaluating which B2B payment method to offer your customers:

  1. Interoperability between businesses – Check if the payment method is compatible with your client’s preferred method. Or, select two or more payment methods that can support all of your current and future clients.
  2. Security issues – When receiving money, your payment method should offer you and your client security. It’s best to check what security features each method offers before selecting one.
  3. High transaction fees – Depending on the payment method, your transaction fees can range from 2% to 5% per transaction. This may drive away budget-conscious buyers who don’t want to pay these processing fees. 
  4. Lack of visibility and efficiency – Some payment methods aren’t transparent, and it can be hard to identify which stage of the transaction your payments are in during processing periods. 
  5. The disparity in fund payment days – While some payment methods offer a 24-hour payment cycle, others can take up to 30 days to clear. It can be challenging to keep track of what is owed to you and when you may receive it.

To address the issues surrounding B2B payments, the efficiency and reliability of systems used are essential, and the ability of payment systems to accept various payment methods.

 

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Benefits of Digital B2B payments

Understanding the nature of B2B payments and the issues that can arise during transactions has paved the way for B2B payment automation. And with digital technology becoming more sophisticated yet accessible, automation takes a step further with digitalisation.   

Indeed, Digital B2B payments are increasingly becoming the payment method of choice for many businesses in today’s economic landscape. Here’s why:

  • B2B digital payments involve self-service platforms for customers, which they can use to pay invoices irrespective of their location and the time.
  • Modern B2B payments automation technology has safe authentication measures. From credit card pins to 2FA on mobile/desktop payment management apps, you can safeguard the financial privacy of your client and yourself.
  • Digital transactions are easy to track, with payment details stored in easy-to-access databases – reducing duplication and ambiguity.
  • Digital B2B payments are less expensive in the long run. Processing fees associated with B2B digital payments are low compared to traditional payment methods like paper checks.
  • Automation helps you maintain good relations with all of your stakeholders because of the ease, efficiency, and promptness of digital payments. 
  • Many digital payment systems integrate with AR automation software that can generate detailed reports about your financial health. You can use these reports to gain insights regarding customer payment behaviour to help your collections strategy.

 
Related blog post: Top 5 B2B Payment Hacks for Digitising Your Business
 

Steps to digitalise B2B Payments

According to new predictions made by FIS in the latest Global Payments report, only 2.1% of payments will be made by cash in Australia by 2024.

There’s no doubt that there is an ongoing shift toward digital payments. With the benefits accompanying it proving to be substantial, now is the right time to start planning how you can digitalise your payments. Here are some tips to help you get started:

  1. Think of your B2B payments experience as a B2C experience. Consider what people may prefer in a payment system and try to make it happen for your B2B needs. Features such as a digital ‘Pay Now’ button on your invoices and SMS reminders can make the payment experience better for your clients.
  2. Identify the nature of your B2B payments system. Figure out what may need changing and how you can improve your payments management system. For instance, you may need payments to automatically write back to your ERP so you don’t have to worry about reconciliation. Also, identify what you wish to retain from the old system if it is good.
  3. Think of which payment methods your clients are most likely to use and try to offer multiple payment methods. Some clients might prefer credit card payments, while some may prefer a direct debit payment. The easier it is for them to send payments, the more likely they will do business with you and pay you on time.
  4. Make available digital offers that provide your clients with the buy-now-pay-later options, helping you improve client loyalty. Consider financing solutions to offer to your clients for them to be able to complete payments.
  5. Implement identity-management protocols and premium security measures to safeguard your payment system users.

Transform B2B Payments with ezyCollect

Contact an accounts receivables automation expert to help customise a digital payment system for your business. Book a free demo of ezyCollect and discover how AR automation and B2B digital payments can work for you.