Ever caught yourself contemplating how much time your collections team spends on repetitive tasks?

Perhaps as a CFO in an emerging SaaS startup, you're not yet feeling the pinch of manual labor, but once you cross the threshold of, say, 100 customers, the game changes. The stakes get higher, the customers more diverse, and the manual labor involved in collections escalates.

That's when the power of technology and automation take center stage in streamlining processes. In particular, automation in Accounts Receivable Collections (ARC) is often underappreciated yet significantly influential on your company's cash flow and customer relations.

Now, before we dive into ARC automation, consider this: A study by Paystream Advisors found that companies managing collections manually spend a staggering 30% of their time preparing for the collection and only 20% actually communicating with customers about payment. The takeaway here? If your team spends more time organizing spreadsheets than building customer relationships, it's time to rethink your approach.

Here's where the intrigue of automation in ARC lies. However, as with any significant change or investment in business processes, the looming question is about the Return on Investment (ROI). Is the cost, effort, and cultural shift required to automate your collection process worth it?

To address this query, this blog post aims to evaluate the ROI of ARC automation. So, let’s jump in and explore the potential to transform your collection process!

Setting the Stage: Objectives and Expectations

Before talking about automation and its ROI, it is necessary to set clear objectives and expectations. This involves identifying the bottlenecks in your existing collections process and defining what you aim to achieve by implementing automation. Are non-payments and late payments leading to increased collection expenses? Is your Days Sales Outstanding (DSO) number too high, leading to inconsistent cash flow? These are some important questions that need to be answered before automating anything.

Furthermore, quantifying all the Key Performance Indicators (KPIs) related to your current collection activities can provide a comprehensive picture of your existing operations. This data serves as a benchmark to compare and validate if the potential increase in ROI from automated collections is worth the initial expenditure.

Understanding Current Receivable Collection Processes

The first step towards automation is dissecting your existing receivable collection processes. This involves an in-depth evaluation of various aspects:

• Cost of channels used for monthly payment reminders: This includes the expenses associated with traditional channels such as calls, SMS, email, and paper invoicing.

• Number of collection agents: The size of your collection team is directly proportional to the speed of your collection process. It also significantly contributes to the total collection expenditure.

• Expenditure on monthly salaries for collection agents: Labor costs often constitute the maximum portion of investment in collection activities. Hence, measuring the return on this investment becomes of paramount importance.

• Average number of monthly reminders: Keeping track of the number of monthly reminders sent via different channels to customers with due payments can provide insights into the efficiency of your collection process.

• Average receivables / due amount per invoice: Monitoring the average due amount is essential as it helps determine the cash flow trapped in uncollected receivables.

Benchmarking Metrics for Evaluating Automation Expenditure

Once the current state of your collections process is thoroughly understood, the next step is to establish metrics for evaluating the expenditure on automation. Automation, especially when powered by artificial intelligence (AI) and robotic process automation (RPA), can significantly reduce your average DSO number and improve cash flow.

For instance, consider Tesorio, a leading solution in AR automation. It leverages AI to streamline the collections process, thereby reducing time and resources spent while increasing efficiency. The metrics that can be used as performance indicators for such automated ARC solutions could include:

• Improvement in cash flow amount per month with the projected lower DSO.

• Savings from collection activities via different channels.

• Reduction in the amount of loan write-offs and defaults.

• Lowering the expected credit loss through a proven collection process (ECL / IFRS).

Calculating Potential ROI with Tesorio

The ultimate goal of implementing an automated collections process is to achieve a higher ROI. But how can one calculate this potential ROI? You may want to take a look at Tesorio’s ROI calculator. This tool helps you realize the potential ROI from different collection activities and also showcases the potential savings you can achieve based on the data you provide.

Imagine this scenario: Your company has an annual revenue of $500 million and a current DSO of 105 days. You have a collections team of 10 Full-Time Employees (FTEs) costing you $98K per employee annually. With Tesorio's ROI calculator, you can estimate your return on investment with Tesorio Accounts Receivable. The calculator predicts a 1-year saving of $589,522 and a monthly cost of delay of $175,863. Furthermore, it estimates working capital savings of $21,747,945, productivity savings of $588,000, and reduced DSO savings of $1,522,356. This scenario illustrates the potential benefits of integrating automation into your collections process.

Exemplifying Success: Real-world Cases

The real-world success stories of companies like Couchbase and Veeva Systems further validate the benefits of automation in collections.

Couchbase, a leading NoSQL database provider, implemented Tesorio's Cash Flow Performance platform to streamline its collections and cash flow forecasting. The results were impressive: a reduction in DSO by 10 days, a double increase in collections team efficiency, and a cut in cash flow forecast build time from 10 days to hours. (Case Study)

Veeva Systems, a global leader in cloud-based software for the life sciences industry, also reaped the benefits of Tesorio's platform. The company reported a 75% reduction in bad debt write-offs, a 50% reduction in 90-day aged accounts, a double improvement in collections team efficiency, and increased accuracy in collections forecasting. These case studies provide tangible evidence of the high ROI that can be achieved through automation. (Case Study)

The Final Verdict

The ROI of collections automation in A/R management can be substantial. However, it requires a carefully mapped strategy, starting with defining clear objectives, understanding existing processes, setting benchmark metrics, and finally using a reliable tool like Tesorio's ROI calculator to predict potential ROI. With the right approach, the integration of automation in your collections process can not only boost efficiency but also have a significant positive impact on your financial health.