Transforming AR management in B2B companies

Predicting the trajectory of the U.S. economy is a humbling task. As treasurers manage near-constant economic uncertainty and the cost of capital, they are more focused than ever on managing working capital tightly and seeking internal sources of funding for their businesses. This has led to aggressive efforts to cut costs, contain budgets, and prioritize access to cheap capital to fuel growth.

Growing interest in accounts receivable automation

To improve liquidity, business-to-business (B2B) companies are pursuing accounts receivable (AR) innovation which has been a historically difficult nut to crack. While AR innovation has been commonplace among business-to-consumer (B2C) companies, progress in the B2B realm has been fragmented, with larger firms ahead of medium and smaller businesses in digitizing and automating their AR management processes.

The reasons: complexity, fragmentation, lack of standardization and good old-fashioned resistance to change. Proof of the stubborn intricacy of accounts receivable processes is the surprising percentage of payments that still are not electronic. In fact, an estimated 32% of U.S. B2B payments in 2024 were made with paper checks or cash.

This is in sharp contrast with the rapid digitization transforming consumer-to-business (C2B) payments. The comparison is not entirely fair. There is little friction between the consumers who demand digitization and the businesses that are happy to accept it. That same alignment doesn’t exist in B2B. “You have buyers with their own AP process and suppliers with their own AR processes, and digitization will require both the processes to integrate but still work independently of each other,” says Sachin Thakur, who leads Digital Receivables and Healthcare Products in Global Treasury Management at U.S. Bank.

Consider the complication introduced if a supplier offers dynamic discounting to one of its best B2B buyers. When there is a lack of alignment and data sharing between buyer and supplier, things can get complicated fast. For example, inadequate alignment can cause confusion over whether a buyer takes advantage of a discount they qualify for or pays an invoice in time to qualify for a discount. This all adds up to more work for a supplier to validate that the data coming from different sources is accurate.

Modernized AR boosts DSO

None of these challenges should stand in the way of accounts receivable modernization, which means a shift away from manual and labor-intensive processes to automation and digitization.

B2B companies should understand that accounts receivable digital transformation drives improved DSO (days sales outstanding) results. Because it streamlines processes and reduces manual interventions, digital transformation of AR inherently reduces DSO, which is the primary goal and creates more stable long-term efficiencies.

The first step to accounts receivable digital transformation

A complex B2B accounts receivable process can’t be digitized and transformed overnight. A more realistic — and ultimately more successful — approach is to start small and work to transform a single, high impacting process. Some companies start by digitizing invoice delivery. Though a small piece of the entire B2B accounts receivable process, it can cut down DSO by days or weeks.

Taking that seemingly small initial step accomplishes a couple of important things. It drives efficiency, obviously, but it also builds improved and secure communication between buyers and sellers. One way that happens is by delivering invoices directly into the buyer’s technology ecosystem, typically their ERP system or AP platform. Having a secure way to interact and communicate between a buyer and suppliers helps when there is a clarification needed on invoicing or discounting. An integrated technology ecosystem enables seamless communication between buyers and suppliers and the ability to provide multiple payment channel or credit options.

A driver of buyer satisfaction 

Once a single piece of the AR process is digitized, it becomes easier to transform others, including reconciliations and approvals. As each step of the AR process is modernized, the benefits of B2B accounts receivable digitization and automation become clear, both inside and outside companies. For example, rapidly growing companies can’t simply add staff to address escalating AR demands. Additionally, improved AR technology and processes that replace manual and time-consuming tasks will free up staff to do more strategic work and improve job satisfaction.

At a time when attracting and retaining talent is a big challenge for many B2B companies, a reduction in tedious manual work affords an advantage. But arguably the most important benefit of a more digital and automated AR process is happier buyers. “Ten to 15 years ago, buyer satisfaction didn’t have the same priority within B2B organizations,” Thakur says. “Now that has to be the number one priority. Having a happy buyer/customer means you're growing the business. Especially within the B2B space, having a satisfied buyer means they can give more business to you.”

Integrated receivables can streamline invoicing, payment processing, cash application and collections while improving cash flow. Interested in learning more about receivables solutions from U.S. Bank? Connect with us today.