Council Discourse: Three Reasons Why Your ERP System Falls Short for Accounts Receivable Management
Large and midsize business-to-business (B2B) entities rely heavily on their enterprise resource planning (ERP) systems to maintain smooth operations. However, when it comes to managing accounts receivable (AR), these systems often prove insufficient.
This conclusion stems from a recent study by analyst firm Datos Insights, commissioned by my organization, titled "Transforming Accounts Receivable: ERP Systems Aren’t Enough."
It's crucial to acknowledge that today's ERPs are advanced platforms providing real-time insights, automating complex processes, and aiding data-driven decision-making. Yet, they fail to deliver in AR management.
According to Datos Insights analyst Robin LoGiudice, businesses utilize a mix of ERP and bank treasury management systems to send electronic invoices and receive payments. However, these systems lack the required capabilities to automate and manage AR tasks. Although ERPs can integrate with banks for accounting and banking activities, neither is well-suited for complex AR tasks.
Why is that?
1. AR tasks are highly complex.
Accounts receivable appear deceptively straightforward. It's more than invoicing and awaiting payments. It entails presenting invoices in various formats, offering multiple payment options, receiving payments, and reconciling them. The complexity arises in:
Invoice Presentation
As invoices should be sent through various channels such as online portals and mobile apps, ERP systems may lack the flexibility to handle all these formats.
Payment Options
Customers crave choices. From ACH transfers and corporate cards to mobile payments and real-time payments, the variety can be overwhelming. ERPs often struggle to keep pace, leading to dissatisfied customers.
Payment ReconciliationDeducing payments to specific invoices, managing discounts, monitoring late fees, and handling collections are intricate tasks. Most ERP systems are not built for such complexity, resulting in manual work and errors.
2. Integration and real-time visibility poses challenges.
Another challenge with ERP systems is the lack of real-time visibility into payment transactions. Although ERPs can integrate with financial institutions, these integrations may not deliver the real-time data required for efficient AR management. You may encounter:
Slow Speed of Payment/Settlement
Prompt payment processing is vital for cash flow maintenance. ERP systems often lack the speed required, causing delays and inefficiencies.
Lack of Real-Time Data
Accurate financial reporting and decision-making necessitate real-time visibility into payment transactions. Most ERP systems fail to offer this, resulting in payment process gaps and rendering AR management complicated.
Integration Issues
Even when ERPs provide integration options, these can be complicated and prone to errors. This results in fragmented data and lack of unified information flow, further complicating AR management.
3. Manual processes persist in AR.
Although ERP technology has progressed substantially, many businesses continue to rely on manual processes to manage AR. This results in:
Data Entry Errors
Manual data entry is error-prone, leading to mistakes such as inaccurate invoices, missed payments, and discrepancies in financial records. Rectifying these errors can be time-consuming and costly.
Disseminated Data
Combining ERP systems and manual processes often disperses data across numerous systems. This makes it challenging to acquire a clear understanding of AR status and hampers effective decision-making.
Time-Consuming Reconciliation
Manually reconciling payments is labor-intensive and consumes considerable time and resources. This slows down the AR process and affects overall finance department efficiency.
Automating AR processes can significantly diminish reliance on manual work, minimize errors, and release personnel to focus on strategic tasks. Automation solutions can also streamline data entry, guarantee data consistency, and accelerate reconciliation, thereby improving accuracy and efficiency.
ERP systems are indispensable for managing various business functions; however, they're inadequate for managing the intricacies of accounts receivable. Recognizing the limitations of ERP systems and considering investing in AR automation, businesses can improve cash flow, elevate customer satisfaction, and ultimately boost financial performance.
The information presented here is not investment, tax, or financial advice. Consult a licensed professional for advice tailored to your specific circumstances.
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- Sunil Rajasekar, an analyst at Datos Insights, strongly advocated for the use of specialized AR automation solutions alongside ERP systems to tackle the complexity in AR management.
- In the study, Sunil Rajasekar highlighted that automated AR solutions are essential for streamlining manual processes, reducing errors, and ensuring real-time visibility, ultimately enhancing financial performance.
