How to Analyze and Improve Your AP Turnover Ratio
How to Improve Your AP Turnover Ratio and Strengthen Your Relationship with Suppliers
We all strive to have healthy relationships, and for a company, how good or bad a relationship is with its suppliers is dependent on how financially healthy the business is. In an economic environment where suppliers are in power to decide whom they want to do business with, it is critical to maintain a strong supplier relationship. And to achieve this, AP must ensure that invoices are paid in a timely and accurate fashion.
An accounting metric that is often ignored but can provide a vital glimpse into how your company measures up financially is the accounts payable (AP) turnover ratio.
Definition of accounts payable turnover ratio
AP turnover ratio is a type of financial ratio that essentially gauge how often a company pays its suppliers by considering the total cost of goods sold over a certain period, usually a month or a year. The KPI only measures your company’s accounts payable, which represents the money you owe to vendors and appears on your company’s balance sheet as a current liability (a short-term debt)
AP turnover ratio is an indicator of a business’ short-term liquidity (i.e., cash flow), meaning it’s a calculation of the company’s ability to pay its short-term debts. The higher the accounts payable turnover ratio, the quicker the business pays off its debt.
Traditionally, accounts payable has not been regarded as a valuable, expansive part of a business, so something like AP turnover ratio is not regularly calculated, let alone even on a company’s radar. However, more and more companies are investing in software and resources in order to optimize the accounts payable function, which in turn improves AP turnover ratio.
How to calculate accounts payable turnover
Get your calculators ready because it’s time for a quick math lesson.
As previously mentioned, accounts payable turnover ratio is a liquidity ratio. It shows how well a company can pay off its accounts payable by comparing net credit purchases to the average accounts payable.
That being said, here is a basic formula for AP turnover ratio:
Total net credit purchases from all suppliers during the period ÷ Average accounts payable for the period
If your company uses accounts payable software, the total credit purchases are something that can be automatically generated. If not, purchases can be calculated by subtracting the starting inventory from the ending inventory and adding that to the cost of sales.
You can calculate the average accounts payable for the specific period by referencing your financial statement. Simply add the beginning and ending accounts payable balances for the period and divide them by two.
Here’s a quick example of calculating AP turnover ratio:
Let’s say your company’s total net credit purchases for the year were $200,000, and your average accounts payable for the year were $110,000.
That means 1.8 is your accounts payable turnover ratio. In other words, your business pays its accounts payable at a rate of 1.8 times per year.
Understanding turnover ratio formula
You’re probably thinking: is 1.8 good or bad? Unfortunately, it’s not a black-and-white situation. It would be ideal to compare this ratio to previous ones as well as to the ratios of other companies of similar size and industry. However, you can gain additional insight by calculating the average number of days payable outstanding with the following formula:
Period of time ÷ AP turnover ratio = Days payable outstanding (DPO)
Typically, taking 203 days to pay suppliers is slow and not a great indication of a company’s financial condition. Vendors would most likely not be willing to keep extending credits to this company unless the creditor’s turnover ratio is increased, which would decrease the number of days it takes this company to pay off its debts.
High vs. low: What is considered a normal turnover ratio?
In general, a high accounts payable turnover ratio reveals that a company is paying its suppliers quickly, and a low ratio shows that a business is slower at paying its bills. If a company’s ratio is declining, it could result in the business not being able to adhere to the average credit payment terms and receiving a lower line of credit.
High AP turnover ratio
A high AP turnover ratio shows suppliers and creditors that the company has the working capital to pay its bills frequently and can be used to negotiate favorable credit terms in the future. Essentially, a high accounts payable turnover ratio indicates high creditworthiness. Keep in mind that a high AP turnover ratio isn’t always positive. If the ratio is high and continues to climb over time, this could mean that a company isn’t properly managing its cash flow.
Low AP turnover ratio
A low AP turnover ratio is not ideal. It could signal that a company is struggling to pay its bills. When vendors are conducting a financial analysis of a company, a low ratio could deter them from extending lines of credit.
Normal AP turnover ratio
Whether or not a company is in a good spot when it comes to its AP turnover ratio is somewhat relative. As with all ratios, this metric varies across different industries and requires benchmarking with similar companies to gauge how your company is performing. Also, conducting a complete financial analysis will show how your accounts payable turnover ratio impacts other metrics in your business and reveal just how healthy it is.
How are companies managing accounts payable turnover ratio?
Whether a company has a high accounts payable turnover or a low one, the fact that the business is calculating this metric in the first place is a step in the right direction. As mentioned, you can convert AP turnover ratio to the number of days outstanding (DPO) to gain clarity and manage your ratio more effectively. Companies use different periods of time to compute days payable outstanding, for example, some might use 365 days, and others might plug in 30 days to the formula.
When determining total supplier purchases for the AP turnover ratio formula, some companies only include the purchases that impact the cost of goods sold (COGS). This is generally not recommended, as it will result in an incorrect and very high accounts payable turnover ratio.
Managing AP turnover ratio is a delicate dance. Some businesses pay creditors too fast, leaving them with insufficient funds to cover other bills, while others unnecessarily miss payments and damage relationships with suppliers. The key is to keep an eye on the ratio to optimize cash flow.
Do my current liabilities impact my AP turnover ratio?
Your current liabilities will always impact AP turnover ratio. Remember, you need your average accounts payable to calculate AP turnover ratio. Your average accounts payable balance is found in the current liabilities section of your company’s financial statements by adding the beginning and end of year accounts payable balances and dividing that by two. Accounts payable (your current liabilities) vary throughout the year, so calculating the average AP will result in a more accurate turnover ratio.
The importance of a high AP turnover ratio
Having a high AP turnover ratio sends a clear message to vendors that your company is in good financial condition and can make on-time payments for purchases made on credit. A high turnover ratio can oftentimes be used to negotiate favorable credit terms and allows a company to take advantage of early payment discounts.
Achieving a high AP turnover ratio is possible, and a company can work with a reputable payment processing company like Corcentric to get its ratio where it wants it to be.
Tips for improving your AP turnover ratio
Improving your AP turnover ratio is crucial to managing cash flow and ensuring that your company is financially healthy. Luckily, there are software and services that can help identify any issues with cash flow management and streamline payments.
Investing in an accounts payable automation solution with electronic purchase orders, payables automation, automated three-way match, and automated B2B payments means faster and cheaper invoice processing, greater compliance, fewer disputes, and better supplier relationships. All of this leads to a better AP turnover ratio.
Automation technology allows finance departments to control payables more effectively and provides real-time visibility into liabilities. By gaining insight into days payable outstanding, AP can define better payment timeframes and capture supplier discounts.
Corcentric’s accounts payables automation solution can give your company greater control over cash flow and working capital.
Stay Ahead of the Curve
Maintaining good supplier relationships, supply chain financing, working capital management, automation, and hyperautomation, are just some of the trends that will be influencing Accounts Payable this year and in the years to come.
Read Ardent Partners’ Accounts Payable 2023: BIG Trends and Predictions to gain actionable insights on how you can stay ahead of the AP curve. Read now
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Optimizing Organizational Performance Through Accounts Payable Automation Software
CALCULATING ACCOUNTS PAYABLE
The decision to incorporate software into any organizations operations can be daunting yet essential task. For many companies, effective and efficient accounts payable automation software can be the difference between success and decline. Even in businesses with existing accounts payable automation software, financial executives may find it beneficial to evaluate their current practices with an eye towards improvement.
The right software tools can provide number of critical benefits, ranging from improved accuracy and productivity to improved cash flow management. In these challenging economic times, financial executives may find it extremely beneficial to review the use of accounts payable automation software, as these resources are designed to streamline and optimize the accounts payable process. Here, we will take an in-depth look at how executives can improve operational performance through the use of automated accounts payable software.
Accounts payable automation software makes it possible to streamline and optimize the payment process while preserving accuracy. Most of the leading accounts payable software solutions are straightforward and easy to use, offering variety of tools that simplify complex tedious tasks, enabling financial executives to minimize the associated costs, both in terms of time and resources.
For example, accounts payable automation software can be used to control cash flow and manage purchasing costs. Accurate invoicing and electronic approvals and authorization can expedite payments, liberating cash faster and delivering greater ROI. As well, accounts payable automation software can facilitate better compliance, reducing errors and minimising the potential for fraud.
The key to unlocking these benefits, however, lies in careful selection of the accounts payable automation software. Financial executives should choose the right solution for their organizations, one with the necessary features to handle their specific accounts payable needs. Automated accounts payable software should extend to report generation, invoice analysis and vendor reconciliation. Ideally, the right solution should seamlessly integrate with existing systems and processes, eliminating the need for manual data entry and ensuring greater accuracy.
Furthermore, when possible, financial executives may find it to be in their best interest to use cloud-based accounts payable automation solution, as the cloud?s inherent scalability and platform-agnostic nature make it possible to extend it to additional areas. Cloud-based accounts payable automation software is more secure and user-friendly, and it comes with variety of development tools to enable faster deployment and adoption.
In conclusion, financial executives should carefully evaluate the use of accounts payable automation software as means of improving operational performance. Automated accounts payable software can enable accounting teams to streamline and optimize the entire accounts payable process, offering number of benefits, including improved accuracy, productivity, and cash flow management. The right solution should include variety of specific features and should be able to be deployed to the cloud for maximum scalability and security. By following these guidelines, financial executives can ensure superior organizational performance and ROI.
Optimizing Order-To-Cash With Automated Accounts Receivable Solutions
AR ACCOUNTS
When accessing the revenue cycle capacity of any given business, the order-to-cash process should be closely evaluated. Multiple steps within the O2C cycle, such as invoicing, credit collection, payments, and reporting are undertaken within accounts receivable. It is possible to obtain success by leveraging automated AR technology, but understanding the best way to use this type of solution is important. This guide provides an insight into how businesses can utilize an ar accounts solution to optimize their order-to-cash process.
The first strategy for gaining the most benefit from cloud-based automated ar accounts solution is to understand the real-time data integration capabilities found within most modern solutions. This allows for the interoperability of different businessesystems, including ERP, invoice, and collections systems. Additionally, these solutions offer strong predictive analytics capabilities which can be used to identify discrepancies in the cash flow. Predictive analytics can also help to identify opportunities to take more proactive actions in collection attempts.
In order to move to the next level of AR automation, businesses should consider leveraging artificial intelligence and machine learning. When done correctly, these technologies can identify patterns that would remain unseen if traditional finance processes were used. AI and machine learning also help to identify errors, such as duplicate invoicing, miscalculations, and missing credit applications. By predicting these errors upfront, businesses can reduce the amount of manual work that is done. Aside from reducing errors, these technologies can also help to automatically match incoming payments to the right customer and invoice, streamlining the process and saving time in the long run.
Additionally, businesses should evaluate the ability of the ar accounts solution to monitor customer payment performance. Knowing important metrics such as current payment status, delinquent, and aging balances can help businesses make informed decisions on collection attempts and customer segmentation, resulting in improved accuracy and fewer errors. By automating the tracking of customer payment performance, businesses can improve their decision making abilities almost immediately.
Ar accounts technology also offers businesses the ability to on-board new customers quickly and easily. Through the automated ar account system, businesses can quickly onboard new clients and gain access to pertinent customer information. This is valuable asset, helping businesses to gain insights into newly acquired customers, uncover any discrepancies that exist, and begin collecting payments more efficiently.
Finally, businesses should consider leveraging their ar accounts solution to take advantage of payment channels that are available within the marketplace. This allows businesses to leverage online payment methods such as direct debit, credit card, and bank transfers. By utilizing modern payment methods, businesses will be able to collect receivables faster and reduce the number of customer disputes and incomplete payments.
By leveraging the automation capabilities found within ar accounts solutions, businesses can streamline their order-to-cash process and enhance their revenue cycle capacity. By understanding the real-time capabilities and exploring artificial intelligence and machine learning, businesses can reduce the number of manual interactions required in collection attempts. Additionally, businesses can take advantage of customer segmentation and on-boarding capabilities to gain quick insights into new customers and payment channels to collect receivables faster.
Optimizing Order-To-Cash Software Solutions: A Step-By-Step Guide For Executives
INVOICING SOLUTION
As we move into the digital age, many businesses strive to optimize their order-to-cash (OTC) processes. Given the complexities of modern day accounting, the need for competent invoicing system is of the utmost importance. Fortunately, for businesses of any size, there is wide selection of appropriate software solutions designed to enhance OTC efficiency. This article will provide step-by-step guide for executives to understand, source and implement the suitable OTC software.
Step One: Research Solutions Before deciding on specific OTC software solution, it is important to research the available options. Executives should create list of criteria for the software based on the needs of the business. This could include features such as integration capabilities, pricing, customer service, compatibility with existing systems, user experience, scalability, and security.
When researching solutions, executives must make sure the provider they are considering satisfies their business needs and can provide reliable support. Consultancy companies, such as Gartner, provide industry reports covering the most prominent solutions. The reports will include features, customer feedback, and other useful information that can be leveraged during the selection process.
Step Two: Contact Suppliers Once executives are satisfied that they have found the right solution, they should contact the suppliers. It is best not to enter directly into purchase agreement and to request trial period before committing to prolonged agreement. This will give executives and the team the opportunity to evaluate the performance and user-experience of the software to ensure the software is suitable for purpose.
Step Three: Set User Expectations In the run-up to the launch of the software, executives must set user expectations preceding the go-live. They should provide detailed instructions for members of the team, inform them about support contact information and designations, and enable training and documentation. Executives must also ensure that necessary backups and archiving are in place to provide further security and enable additional safeguards.
Step Four: Launch When the solution is ready to go live, executives must launch the software and monitor performance. Executives should keep record of any problems encountered during the launch and provide solutions to the users should those problems materialize.
Finally, executives should review and monitor usage of the software and should understand how it can be enhanced to gain maximum benefit.
Conclusion For efficient, streamlined operations, executives should strive to optimize their order-to-cash process. Utilizing the appropriate software solutions can enable this. Researching solutions, obtaining feedback, providing user support and launching the software are important steps to understanding and implementing the OTC solution. Executives should use this guide as blueprint and resource in order to acquire the most advantageous software for their business.
Optimizing Order-To-Cash Software For Operational Performance Improvement
OTC PROCESS IMPROVEMENT TOOL
Order-to-cash (OTC) software applications are complex implements that require comprehensive integration for comprehensive optimization and performance. For the finance executive considering an OTC process improvement solution the de facto objective is to select one which can be swiftly implemented and increase operational efficiency.
The challenge that arises when looking for such software is to determine vendor who can meet the businesses financial requirements, technical specifications, and regulatory demands; all without disrupting existing processes. Selecting viable option must commence with the evaluation of traditional financial performance metrics, user-specific preferences, and the regulatory body's restrictions.
The CFO must consider several important aspects in order to obtain an appropriate OTC software to meet businesses specific requirements. Foremost, they must evaluate customer service and sales (CS/S) process goals, customer relationship management (CRM), back office management (BOM), customer credit management (CCM), order fulfillment (OF), as well as accounts receivable/payable (AR/AP). All these components effect customer service, operating cash flow, and customer satisfaction in varying degrees. Additionally, there are several alternative OTC software formats available; including on-premises, hosted, cloud, and even legacy systems.
The most frequent challenge when selecting an OTC software is its cost and scalability associated with the existing customer service and financial management system. In order to reduce complexity and costs, CFO must determine if any specialized software is necessary to integrate various components of the current OTC processes, and if off-shelf options can be implemented efficiently. Moreover, the type of OTC industry which is primary to the enterprise must be considered when selecting the best-suited OTC software package.
Since most businesses reside in heavily regulated industry, compliance with industry specific statutes must be factored into the purchasing decision. In such instances, the OTC software should be able to process complicated financial calculations, meet audit istandards, and comply with regulatory requirements quickly and efficiently. Additionally, the system must be able to track and record customer-client related transactions to facilitate accurate reporting and projected long-term growth.
Finally, the finance executive must assess the proposed OTC software solution's ability to handle large sets of customer records, enable customer service personnel to be proactive in their customer interactions, and ensure optimization of operational performance (e.g. reduced processing time, lowered costs). The chosen software should also offer real-time analytics as it relates to customer insights in order to enable effective decision-making.
In summary, selecting an OTC software solution requires an in-depth evaluation of several measures and considerations. From determining the financial and technical requirements to understanding the regulatory demands, comprehensive review must be completed in order to be able to achieve operational performance improvement goals and obtain an ideal fit within the organization.
The right solution and vendor selection can help save significant time and money in the long-term; while comprehensive integration and optimization will provide superior functionality.
Optimizing Order-To-Cash Software For Improved Operational Performance
ACCOUNTS RECEIVABLE CASH APPLICATION
The Finance Executive faces many challenges in optimizing operational performance and realizing strong returns on financial investments. Oftentimes, investments in accounting applied technologies, such as accounts receivable cash application, fail to recognize the extensive value that these applications bring in terms of scalability, efficiency and accuracy. Here we will explore the ways an optimized order-to-cash software system can lead to improved operational performance and increased returns.
A software system designed to maximize order-to-cash efficiency can offer several compelling benefits to an organization. By expediting the process of collecting funds and integrating seamlessly with legacy systems, the organization can realize improved cash flows, enhanced management of customer credit and improved customer relationships. The streamlined process of order-to-cash management enables improved communication and collaboration between the different departments involved in the order-to-cash process, such as sales and accounting.
For software application to drive the most efficient order-to-cash process, it must be properly structured and configured for the organizations specific objectives. it ishould be powered by optimized algorithms that seek to reconcile and apply discounts due from customer payments and recognize any discrepancies quickly. The system should also be integrated with key financial systems for convenient data sharing in order to reduce manual rekeying of customer data.
In addition to operational efficiencies, an optimized order-to-cash system also offers financial benefits. By streamlining the receivables process, organizations can realize cash inflows more quickly, allowing them to make investment decisions quicker and free up working capital. With fewer manual errors and delays, costs associated with lost revenues and late payments are reduced while customer satisfaction increases.
Organizations looking to invest in an order-to-cash software solution should prioritize systems that leverage artificial intelligence and machine learning to continually analyze and optimize the AR process and online customer transactions. Utilizing AI technologies, the software should be able to capture data and identify patterns that can be used to improve cash application and other related processes.
Selecting the right software system comes down to evaluating which solution will lead to the greatest gains in operational performance and returns. By optimizing the order-to-cash process, organizations can obtain better control over the billing and receivables process, increasing the accuracy and predictability of their financial positions.
Optimizing Order-To-Cash Software For Collections Success
SOFTWARE FOR COLLECTIONS SUCCESS RATE O2C
Collections success rate plays an essential role in any Corp-to-Corporation (C2C) business. At the heart of the order-to-cash (O2C) cycle lies an efficient collections platform that facilitates the accounts receivable process and ensures that accounts are updated in timely manner. Usually, the collections success rate is an indicator of the overall health of business operations. good collections platform is necessary for maximizing the collections success rate and optimizing the operations.
The need for robust O2C software is doubly important in todays digitized business world where customers expect fast turnaround times and quick response times. Many of the current O2C software packages offer various features such as automated payment processing, granular control over transactions, and ability to track and manage customer payments. However, these packages are often complicated and lack certain features, thereby compromising the collections success rate.
To maximize the efficiency of the O2C software, it is important to focus on the key performance indicators (KPIs). In order to reduce the complexity of the software, it is important to determine which KPIs are important for optimal operations. By focusing on the KPIs, the O2C software can be tuned to provide the best performance.
When choosing an O2C software package, it is important to make sure that it has the capability to handle both on-premise and SaaS models. it ishould also be able to manage the customers across different locations and geographies. Moreover, it ishould have the ability to provide analytics and reports that provide real-time insights. The O2C software should also offer seamless integration with other software packages such as customer relationship management (CRM), Enterprise Resource Planning (ERP), and Supply Chain Management (SCM).
In addition, an O2C software should provide strong collections support, such as automated follow-ups, reminders for overdue accounts, and secure dispute tracking capabilities. This helps to ensure that customers receive the payment consistently and on time. Having the ability to track and record the customer interactions such as emails, telephone calls and other forms of communication helps to provide the customers with timely updates and keeps the collection process smooth and timely.
Finally, it is important to ensure that the O2C software is well-adapted to the current business environment. This includes ensuring that the software is able to adhere to current legal and compliance guidelines, such as the General Data Protection Regulation (GDPR). Moreover, the software should provide support for alternative currencies and payment methods, such as e-money, cryptocurrencies, and various other payment options.
By taking into account all of the abovementioned considerations, businesses can deploy an O2C software that can provide them with an optimized collections success rate and ensure efficiency and profit in the long run.
Optimizing Order-To-Cash Processes With Automation
AR AUTOMATION SOLUTION FORRESTER
For finance executives seeking to streamline the complicated order-to-cash processes, software automation solutions provide viable option. With comprehensive automation strategy, functions like accounts receivable (AR) activities, invoicing, collections, dispute management, and cash application can be automated with substantial efficiency gains.
A complete automation workflow will significantly reduce the number of human touchpoints in the order-to-cash process and elevate systems accuracy. This is particularly helpful when managing orders with large amounts of invoices and transactions. Automation solutions provide the capability to configure pre-built process components, allow for integration of new applications, and batch processing of invoices and orders. With reduced manual tasks and improved accuracy of data, there's significant opportunity for cost savings.
Organizations looking for operational efficiencies should leverage solutions that leverage Artificial Intelligence (AI). AI-based systems are able to quickly read and interpret documents, automatically indexing and coding data for faster processing, eliminating data entry errors and reducing manual activities. An AI-based system should also be configurable to an organizations existing back-end systems and should easily integrate out-of-the-box optimizing systems interoperability.
When selecting software automation solution for the order-to-cash process finance executives should consider those developed following Forrester's Advice on Selecting Software Automation Solution. Forrester recommends solutions that are intuitive, extensible, and secure. Furthermore, finance executives should look for solutions that include analytics so they can quickly assess performance. These solutions should provide guidance to improve processes and also should easily adjust as needed when policies, products, and processes change.
In conclusion, in order to optimize the order-to-cash process, finance executives should consider automating the various components of the workflow by leveraging an AI-based software automation solution that is intuitive, extensible and secure. This type of automated solution will ensure reduced human touchpoints, decreased manual tasks, improved accuracy of data, enhanced systems interoperability, and rapid processing of invoices and orders.
Optimizing Order-To-Cash Processes Through Automation Software
AUTOMATED AR FLOW
As Finance Executive, you are likely familiar with the complexities, problems and inefficiencies associated with the order-to-cash process. Late, duplicate or lost orders, incorrect or incomplete order information, data entry errors, billing mistakes, cash reconciliation and order monitoring these are all activities that require substantial investment in resources to perform in timely and efficient manner. businesses have traditionally used manual processes to carry out these tasks, resulting in inaccurate data, long processing cycles and slow response times. The result is wasted time, resources, and money.
Fortunately, the development of automated software for order to cash is helping to streamline the process by providing additional efficiency and effectiveness. Automated software for order to cash facilitates the process by quickly capturing customer orders and automating interfaces for transferring customer information. This complete automation of the order process simplifies manual tasks that must be carried out and reduces the amount of time and effort needed to manage customer orders.
Improved customer experience is one of the many benefits of automated software for order to cash. An automated order processing system permits customers to access up-to-date information via an online customer portal, while simultaneously reducing the processing time of an order. In addition, customer order history and customer information are easily accessible and retrievable, allowing for better customer service. The result is an improved customer experience which translates into customer loyalty and increased sales.
The use of automated software for order to cash also provides additional accuracy and data security. Automated processes increase accuracy in order processing and eliminate the tedious manual errors associated with manual data entry. All customer information, including delivery and billing details, are securely stored in the system. This allows businesses to keep customer data confidential and secure.
Automated software for order to cash also provides an improved invoicing and payment process. With an automated system, invoices can be generated quickly and customers can submit payments electronically, bypassing the need for checks and invoices. This significantly reduces order processing times and leads to swift and efficient reconciliation of cash.
Finally, automated software for order to cash enables businesses to closely monitor customer orders and track order statuses. Automated software allows businesses to track customer orders in real-time and flag potential order issues before they become major problems. Notifications help businesses keep customers informed and provide customer service teams with the essential data they need to properly manage customer complaints.
In conclusion, automated software for order to cash provides businesses with many advantages, including improved customer experience, data security, more efficient invoicing and payment processes, and order monitoring. By implementing an automated order to cash process, businesses can reduce the cost and time required to manage customer orders while improving customer satisfaction and loyalty.
Optimizing Order-To-Cash Process With Deduction Management Software
DEDUCTIONS MANAGEMENT BEST PRACTICE
Order-to-cash (OTC) plays pivotal role in the success of any business as it encompasses the sales process from generating quotes to invoicing and collecting payments. The entire OTC process can be complicated and tedious, and leave room for errors. That?s why utilizing software to automate the OTC process is important for success. However, when it comes to deductions management within the OTC process, which is critical component in capturing receivables, many companies tend to rely on paper-based processes and manual labor.
Though manual deductions processing is common and simpler to do, it does come with higher risks than if software solution was used. Chief among these risks is leaving money on the table in the form of unclaimed deductions or not capturing deductions prior to settlement. Additionally, manual processing is inaccurate, prone to errors, and usually takes much longer than automated processes. Inaccurate deductions management can lead to misstatement of the companies financial position, and in more severe cases, improper payments, loss of invoice discounts, incorrect data in the system of record, and other financial misfortunes.
For finance executives looking to optimize their order-to-cash process, utilizing software solution that automates the deductions management process is must. software with advanced deductions management functions can not only increase the accuracy and efficiency of the deductions process, but also save time. With software, companies no longer have to track and manage deductions manually, as the software will do this step for them. This would enable the company to have more time for various other managerial and finance role tasks, and of course, in the long run, help companies save costs.
In addition to avoiding the risks of manual deductions management and having more efficient operations, deductions management software can also help companies immediately identify rule-based discrepancies in their deductions management process, so they can take corrective action before the settlement. Software solutions sometimes also offer predictive analytics to help finance executives anticipate future discrepancies, so they can preempt non-compliance.
In conclusion, finance executives should seriously invest in software-based solution for deductions management within the order-to-cash process. Such solution can not only help optimize the process, but also avoid the risks associated with manual deductions management and ensure accuracy and compliance. good OTC software will be able to identify discrepancies and prevent non-compliance, as well as provide real-time access to pertinent data such as deductions and deductions trends. Utilizing such software will not only result in cost savings from labor costs and inaccurate payments, but also improved cash flow and the ability to better identify areas for process improvement.
