It’s an extra weird year for world economies, elevating the value of getting paid by orders of magnitude. But volatile economic landscapes (like the one we’re in) create cash flow stability problems. That, in turn, affects reliable payments. It’s bad for business.
This looks like a job for the unsung heroes of B2B payments – Accounts Receivable (AR) teams – whose job it is to fill the coffers, pecuniary headwinds be damned.
Uncertainty puts considerable strain on financial operations, particularly as it relates to matters of liquidity. Those ripples extend throughout the payments ecosystem.
"Tough conditions lead to increased financial stress among customers, resulting in higher bad debt and unpredictable cash flow," according to Kush Shah, Director of Product Management at Bottomline, sharing insights on optimizing AR processes in turbulent times.
The current situation demands more rigorous monitoring and risk management, he says, including tighter forecasting models and improved collections patterns. Shah adds that bridge borrowing is often a hidden cost. “If you're not able to [collect] from customers, that means you're going to end up relying on lending, and that is going to be more expensive.”
Companies must adapt quickly to this flux by implementing more robust AR processes that can withstand economic instability. Shah emphasizes that businesses need to be proactive rather than reactive when dealing with these circumstances.
By anticipating payment delays and implementing systems to address them beforehand, companies can maintain healthier cash flow as a buffer against bumpy markets.
Diversifying Payments to Stabilize Revenues
An effective strategy for managing AR at times like this is offering customers different payment options. The approach not only accommodates different customer preferences but also helps businesses maintain more consistent revenue streams.
"Offering various payment methods can improve payment speeds and reduce strain on working capital," Shah says. He highlights the importance of international and cross-border payment methods as tools to hedge against inflation and foreign exchange.
Alternative payment arrangements, such as partial payments and installments, can ensure at least some cash flow when customers face financial difficulties. Flexibility benefits both the business and its customers, fostering stronger relationships in challenging times.
The integration of multiple payment channels through a unified platform also allows businesses to streamline AR processes and provide customers with even more options.
Shah points out that multi-channel payment solutions and automated invoicing provide valuable forecasting and churn insights, helping businesses make more informed decisions about their financial strategies.
Real-time data access and automated solutions play crucial roles in reducing operational overheads when every dollar matters even more than usual. APIs and embedded payments further enhance these benefits by creating seamless payment experiences for payers while simplifying backend processes for payees.
Leveraging Tech to Mitigate Risks and Improve Efficiency
Fraud tends to flourish during downturns, meaning that businesses face increased fraud risks together with cash flow issues. Shah says secure payment technologies like Bottomline’s business payment processing solutions combat both problems, enabling companies to operate more efficiently while safeguarding finances.
"Automating workflows and approval processes allows businesses to handle exceptions more efficiently," he adds, emphasizing the value of automated systems for quickly responding to underpayments, disputes, and returns. These also rise in troubled times.
Additionally, machine learning, AI tools, and data analytics enable businesses to segment risks and build different rules based on these scenarios. A targeted approach allows companies to allocate resources more effectually, focusing on high-risk accounts while maintaining efficient processes for reliable customers.
Shah identifies several primary fraud risks that increase during economic storms, including payment interception, fake payment confirmations, bounced checks, and fraudulent chargebacks. To mitigate these risks, he recommends implementing confirmation processes for account holders, rules-based access controls, comprehensive audit trails, and anomaly detection systems.
"SaaS-based solutions, multi-factor authentication, secure portals, and improved reporting quality are essential components of an effective fraud risk mitigation strategy," Shah says. These technological defenses not only protect businesses from financial losses but also enhance customer trust through improved security measures.
By embracing automation and advanced analytics, businesses can transform their AR processes from potential vulnerabilities into strategic advantages. The insights gained through these technologies enable more informed decision-making, helping companies navigate market volatility with greater confidence and resilience.
Until things settle down, optimizing AR processes will loom as a critical task. Through diversified payment methods, automated workflows, and advanced risk management strategies, companies can maintain cash flow even in the most unpredictable markets.