How to Reduce DSO and Fix Slow AR Processes

The Payments Podcast by Bottomline

Episode Transcript

Owen McDonald (host): Welcome to the Paymode edition of The Payments Podcast. I'm Bottomline Managing Editor Owen McDonald. This series of payment-themed podcasts looks at the hottest trends in business payments with Paul McMeekin, Vice President of Marketing at Bottomline, along with expert guests. In this episode, Paul welcomes Jamie DelMedico, Head of Product B2B Payments at Bottomline. Jamie and Paul hash out how inconsistent payments data can cause reconciliation headaches, and they delve into shortening DSO and other related topics.

Here's Paul McMeekin and Jamie DelMedico.

Paul McMeekin (cohost): So, Jamie, before we dive into the questions, it would be great to get a little bit about your background and your role here at Bottomline.

Jamie DelMedico: I come from a diverse payments background, everything from banking to working with other financial technology companies focused in the payment space. At Bottomline, my primary responsibility is for our Paymode network, and I run product for our vendor network on Paymode. Everything from developing new products and services, to supporting vendors from an AR automation perspective, as well as customer support and member services.

Paul McMeekin: I'll start off with a big question. What are the challenges that businesses have in accounts receivable and particularly around accepting payments?

Jamie DelMedico: I think the first challenge comes from the payer side of the house. Payers pay the way that they want to pay. That comes through a variety of methods today. Bank ACH, checks, some of them have procure-to-pay platforms, and various other accounts payable solutions. The challenge is that the data that comes along with those payments can be very inconsistent. That results in payers and vendors spending a lot of time on the phone and via email, reconciling those transactions and closing them out in their ERP. 

The second main challenge is speeding up the day sales outstanding. All AR teams want to get paid on time. They're gold on day sales outstanding, to reduce their borrowing costs and provide better cash visibility. But today, many payments still come via check, which significantly slows down day sales outstanding and also are ripe for fraud.

AR departments today don't have great visibility into when an invoice may be paid. So, they have a really hard time with cash flow forecasting, determining their borrowing needs, and planning ahead. Finally, accounting systems and ERPs today don't have great tools to automate accounts receivable. This includes things like invoicing, dunning, collections, and cash posting. So corporates either have to have manual processes working out of email and spreadsheets, or they have to cobble together multiple third-party software providers, which can be very complex, hard to manage, and expensive.

Paul McMeekin: What's changed in the last twelve months? You have outlined the challenges, but what, in the last twelve months, has really changed?

Jamie DelMedico: I think the biggest thing that's changed is artificial intelligence. Artificial intelligence went from being kind of like a fun thing to have to a must-have in the AR industry. Artificial intelligence is a perfect use case for accounts receivable. AI can be really effective at predicting customer payment timing and cash flow needs. It's great for automating things like the invoice and collections workflows, kind of that full end-to-end cash flow life cycle.

And it's especially effective at automated cash posting. So identifying payments that are coming in, matching those transactions to outstanding invoices, and then closing out those payments in an ERP without a lot of manual intervention. AI continues to grow in the AR space, and I expect use cases to continue to expand.

Paul McMeekin: Great answer. So you said ERP a couple of times in the first answer and the second answer there. So I know businesses I've spoken to who use ERPs to send their invoices. You seem to have a different point of view, which might not be enough today.

Jamie DelMedico: I think today, most AR departments are using their ERP for all of their accounts receivable needs. The issue is that ERPs kind of stop at the ability to create an invoice and send an invoice. Now, ERPs are great at creating an invoice relative to a PO and then, sending that invoice to a customer. But oftentimes, those ERPs do not have the best solutions for the full end-to-end life cycle of that transaction.

So, this kind of gets back to my previous point. Because of that, vendors have to turn towards multiple service providers to manage very small slivers of the accounts receivable experience, and that often causes process breakdown. They require AR teams to actually build manual processes in between their point solutions from third parties. So this is really costly to manage, and it also defeats the point. If you have to have a manual solution in place between several different software providers providing a sliver of your AR experience, those efficiencies that you're investing in never actually materialize.

Paul McMeekin: So, Jamie, to your point earlier about many AR teams juggling payments from hundreds of different buyers or payers, as you said, based on their preferences, why is it important for these suppliers to work with their clients to improve remittance data and consolidate payments?

Jamie DelMedico: I think this goes back to my previous point. AR and AP service providers can help to speed up days sales outstanding by offering workflows on both ends of that transaction that speed up that payment. A network like Paymode can ensure that the data required to close that transaction is riding along with each payment in a very consistent and predictable format. And that makes cash posting seamless and further reduces daya sales outstanding. So when the transaction comes in, we're not spending two or three days reconciling that transaction, talking to the customer to figure out what that transaction was for.

So by consolidating more payments with a single provider, not only are those payments more predictable, but the cash posting on more of any given vendor's accounts receivable is automated, which can significantly improve the efficiency of any AR team.

Paul McMeekin: Thanks, Jamie. So zooming out a little bit, how do these AR features that businesses are seemingly clamoring for, you mentioned before invoicing and dunning, why would a buyer or payer work with the vendors to utilize these features?

Jamie DelMedico So, I think the first one is, by partnering with a provider like Paymode, again, it comes down to centralizing more spend via a single provider that provides consistency and predictability and payment, guarantees high quality data along with those payments. The second, Agentic AI can automate workflows that were previously done manually. That creates a lot of efficiency in an AR team. Again, it goes back to the comments around manual telephone calls and emails to chase invoices. If AR teams don't need to do that, they can actually redeploy capacity previously on an AR team to more valuable areas in the organization, or they can use that those savings to improve their margins, drop them to the bottomline. 

And third, most AR departments today are looking to eliminate checks. That the purpose of that is to speed up days sales outstanding and importantly, reduce fraud. Going to a single provider like a Paymode, is really important because Paymode is singularly focused on converting all B2B payments to electronic rails on our fraud free network that really streamlines the process for any given payer or vendor.

Paul McMeekin: That makes sense. So, Jamie, last question. If you had one piece of advice about the future of payments for AR leaders, treasurers, or CFOs, what would that be?

Jamie DelMedico: The one piece of advice I would have is to choose a single provider who can do it all. CFOs are all trying to create more efficiency in their accounts receivable department while speeding up payment, reducing day sales outstanding, and getting more predictability in their cash flow. Going to a single provider like a Paymode, for example, to put a plug in, can centralize more AR via one single rail. It can also ensure that rich remittance data is flowing through with each payment.

And finally, a solution like Paymode can help to displace multiple disparate accounts receivable systems that are cobbled together today for a more efficient and inexpensive process for any given CFO.

Owen McDonald: AI is transforming the accounts receivable space. ERPs need fewer point solutions and fewer manual workarounds to realize true efficiencies. And AR and AP providers can improve workflows for an end-to-end cash flow life cycle using the right platform. That's just a taste of the takeaways from this insightful episode. Thanks to Bottomline's Jamie DelMedico and to cohost Paul McMeekin.

To our audience, the smartest people in B2B payments, thanks for listening. Hit subscribe.

Catch us again on your favorite podcast platforms, including Apple, Spotify, Blueberry, iHeartRadio, and YouTube. Bye for now.

The Payments Podcast, from Bottomline.