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What Does an Account Receivable Solution Cost?

    

You want to be paid for your invoices quickly and predictably. You send out invoices and hope for the best. When the money doesn’t come in, the arduous and often aggravating process of accounts receivable collections begins.

Today accounts receivable management is highly manual and labor intensive. It doesn’t have to be that way. AR automation streamlines your process and improves cash flow, so why isn’t everyone doing it? Cost is a primary concern.

Think of managing your company’s AR like building a swimming pool. You could do it by hand, you could use a tool, or you could hand over the project to an expert and enjoy the results. Doing it all yourself sounds like the cheapest option, but you may be surprised at the ultimate cost.

The High Cost of a Manual Process

What Does an Account Receivable Solution Cost 2You could use your hands to dig a swimming pool. It would be messy and painful, but you’d get there eventually. A manual AR process is similar. Collections is managed by most companies today using multiple internal systems. Excel is used for aging, CRM is used for contacts, ERP is used to track the order (pick, post, pack), billing systems are used to do invoicing, and post it notes are stuck on your monitor as task reminders. You probably devote countless hours of employee time to collecting what you’re owed from customers that have already gone through the sales cycle.

These are the costs of collecting money today. Consider how many hours your team spends collecting invoices and their average hourly pay, and you’ll see the high cost of manual AR collections. When sales ramp, so will collection costs—effectiveness and efficiency are ongoing concerns.

The Expense of Semi-Automation  

You would save time and get better results digging your pool if you used a tool, like a shovel, as the process would go faster. Consider a tool like an ERP system that issues dunning letters for you. A basic dunning module can cost as much as $7,500 (not counting the time and effort needed to organize and implement that feature), and the same each year in annual costs if it’s a cloud-based solution.

However, dunning letters are not enough for effective accounts receivable collections. That’s just one piece and isn’t a whole solution, and only automates the sending of emails to customers about past due payments. You’ll still be doing everything else by hand. You may see some cost savings compared to an entirely manual process, but the inefficiencies are evident.

The Cost-Savings Case for AR Automation  

What Does an Account Receivable Solution Cost 1The third option for your swimming pool is to outsource—hand it off to a team of  experts. That will apply for the proper permits, dig your pool, and pour the cement, and fill it with water so all you have to do is swim. There’s a cost, but is it generally substantially less than taking it on yourself.     

Now think of the pool company as a payroll, billing, accounts payable, CRM, or expense solution. Fifteen to twenty years ago almost every business did most of these things in-house.  Today more than 60 percent of businesses have outsourced one if not all of these services in order to focus on customer success rather than manual back office processes.

There are outsourced AR solutions at an array of costs depending on the size of your business and what type of functionality you require. Some charge by the number of users and some by the number of invoices, annual revenue, or other measurements. A small business could pay as little as $2,500 to automate, while a Fortune 100 company’s fee might be $250,000.

Consider the cost savings that balance the equation. Your accounting staff won’t just be collection agents using multiple systems, instead they will have more time to be customer service advocates for your clients. That’s a tangible positive impact on service and customer experience and real cost reduction in time spent doing manual collections.

How Much Will an Automated Solution Cost?

The short answer is that cost to automate varies. With every installation, there is a mix of one-time fees (professional services, customization, implementation, and setup) and recurring fees (maintenance and always-up-to-date reporting).

If your accounting system is highly customized, intensely manual, or nontraditional, you may pay more initially for extensive customization. After the implementation, you should see only the monthly or annual recurring cost while realizing ongoing benefits and savings to offset the expense.

How Long Will it Take to Realize the Benefits of Automation?

Within the first 60 days of implementation, you should see significant cost and time savings from:

  • Increased cash flow
  • Decreased Days Sales Outstanding (DSO)
  • Decreased time spent on AR collections

The High Cost of Not Automating AR

What’s the cost of not automating your collections? Unpredictable cash flow can cost you opportunities when competing for projects, trying to expand your business, and pursuing financing.  

AR automation allows you to develop a predictable revenue stream. When you’re seeking a bank loan or investors, showing a reliable money trail can differentiate your company, show you’re less of a risk, and garner more money for growth at a lower interest rate.

AR automation also frees up time for your accounting team so they can focus on more important tasks such serving the customer, rather than acting as debt collectors.

Did you know?

  • Nearly 93 percent of businesses report late payments from customers
  • The average payment term is 27 days while realized payment is 61 days
  • Payment delays are on the rise
  • Almost 30 percent of customers use delayed payments as a form of financing

If your AR performance is less than satisfactory, make a change for the better. To see the benefits of automating your AR collections, use our ROI calculator, and then call us for a demo.

ROI Calculator

Mitch DeForest

About the author

Mitch DeForest Mitch DeForest is a member of YayPay’s founding team. A graduate of UNC’s Kenan Flagler Business School, Mitch has experience optimizing sales funnels and scaling lead generation processes. Previously a product manager at Ecoland Institute, Mitch is skilled at building and managing sales teams. He is currently a senior member of YayPay’s sales growth team and leads growth initiatives through the Inside Sales team. He was a Division 1 Athlete on the Men’s Swimming Team at UNC. Read more articles by Mitch DeForest.

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