Smart ways AI is re-making accounts receivables and payables
Anders Liu-Lindberg
Leading advisor to senior Finance and FP&A leaders on creating impact through business partnering | Interim | VP Finance | Business Finance
In this blog, we’ll take a look at one of the most fundamental areas of Finance and Accounting and learn how developments in AI’s capabilities are helping to make accounts payable and receivable more efficient, accurate, and useful.
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Does AI’s influence on accounting mean fewer opportunities for human workers?
Have you ever thought about how many steps there are in accounts payable, or if you have, how to make it more efficient? Better people than me have tried and given up.
Now we’re on the cusp of a new way of doing things and getting things done in Finance. But wait, does that mean less opportunity for humans to play a role in the process? On the contrary.
We believe that even while accounts payable (AP) and receivable (AR) are becoming more efficient due to the intervention of AI, it’s also becoming - conversely - even more humancentric.
While the concepts and origin of AP and AR were originally created to organize the bill payment process.
Their processes have become ever more challenging to manage and keep organized because corporate supply chains have become more complex and there has been an added sophistication to what were once simple payment terms.
So, while AI is starting to play an outsized role, because of the still-evolving complexity and nuanced terms cropping up, we believe human expertise is even more important than it was. That’s because AI will free you up to be a value add to the company.
The cost of getting it wrong just got a lot higher
Perhaps it’s because there are such competent and easy-to-implement AI solutions out there now but we’ve seen the costs of “getting it wrong” are going up.
If there is a build-up of overdue invoices that cause downstream issues with cash flow, leaders will immediately assess whether this is because of poor management, poor processes from invoice to collection, or a combination of both.
That’s because traditional accounts payable and receivable processes are very time-consuming and very inefficient.
Invoices must be manually generated by people with competing priorities and then sent to customers. Payments must then be manually collected, verified, and reconciled.
Don’t forget when the process does not go smoothly, as it almost invariably won’t, your staff members become absorbed in outstanding accounts, and so need to compile and send payment reminders and begin a collection process.
All of this takes many, many human hours of work and high levels of resources which add cost to the process of receiving revenue.
How we can automate the most administrative tasks and give our people better priorities
If we go back to first principles, when we assess “what accounts payable and receive actually are”, at their base level, they’re just a tug of war. A very process-driven, complicated, tussle between two entities.
A bit like Pareto’s law, what if you could use a machine learning algorithm to analyze all of your outstanding payments data, to calculate the approximate value of each outstanding debtor and the patterns (if any) of their past payments behavior?
That’s exactly what Deloitte did for a client. And, modern AI tools make it possible to do for yourself too. After all, how do you calculate value if you can’t be sure of who owes what to whom? By using advanced analytics you can make much more accurate predictions, down to the level of individual debtors.
This system would allow you to use data to visualize your customers’ payment behavior down to a granular level, sorted by different criteria, such as client, type of debate, debt amount or period outstanding etcetera. And, the system could provide a prediction based on historical transaction data, allowing your staff to create more effective plans to chase payment, or, introduce new payment terms that take into account each client’s needs more precisely.
By predicting which customers are likely to pay late or default based on past payment behavior and other factors, AI can enhance the collections process. You can then task it to automate late-payment chase communications with those customers, and send them reminders or even negotiate payment plans.
The benefits of a proactive approach to process automation and AI
What’s good for the supplier is also good for the customer. A proactive approach not only plays a role in reducing delinquencies but also gives an improved customer experience overall. A system and process that can be automatically tweaked, iterated, and personalized per client.
For instance, AI can also help firms assess a customer's creditworthiness. By analyzing different data points, which could include historical data like payment history, or even assess risk behavior based on, for example, social media activity, or conversely macroeconomic factors affecting their sector or industry.
This kind of approach could reduce the risk of bad debt and improve cash flow adding value to the company and enhancing the role of Finance overall. One of the plethora of accounts receivable AI-based solutions companies out there is HighRadius.
They’re a fintech company with detailed case studies on solutions that use machine learning to automate routine tasks, analyze customer behavior, predict payment dates, and prioritize collection efforts, improve operational efficiency, and cash flow. All of which ultimately save their clients money.
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Things are changing fast, so how do you get on board and use AI solutions to your advantage?
Automating mundane tasks, reducing errors, and enhancing strategic decision-making, AI is going to prove to be an invaluable ally. The use cases we’ve covered are just a few examples of how you could rely on AI to transform operations, achieve hidden efficiencies, and get - and keep - a competitive advantage.
Companies quick to embrace technology in their finance functions will be better positioned to drive growth but how are you using it and what sorts of impacts have you experienced with AI integration into your processes? Tell us in the comments below.
This was the seventh article in our new series "Demystifying AI in Finance & Accounting". Remember to subscribe to catch the upcoming articles and read the previous ones below.
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Anders Liu-Lindberg is the co-founder and a partner at Business Partnering Institute and the owner of the largest group dedicated to Finance Business Partnering on LinkedIn with more than 11,000 members. I have ten years of experience as a business partner at the global transport and logistics company Maersk. I am the co-author of the book “Create Value as a Finance Business Partner” and a long-time Finance Blogger on LinkedIn with 290,000+ followers. I am also an advisory board member at Born Capital where I help identify and grow the next big thing in #CFOTech. Finally, I'm a member of the board of directors at PACE - Profitability Analytics Center of Excellence where I support the development of new analytics frameworks that can improve profitability in companies around the world.
QuickBooks Certified Pro-Advisor, XERO Advisor, MSS, M. Com (Accounting), CMA (Final),
1yFollow me on LinkedIn: www.linkedin.com/comm/mynetwork/discovery-see-all?usecase=PEOPLE_FOLLOWS&followMember=m-shafiul-azam-6358b831
Finance & Accounting Professional
1yIt's encouraging to see that these processes are becoming more humancentric. However, it's equally true that some tasks are becoming automated, Nevertheless, it's also an opportunity for individuals to evolve and add value in more strategic roles.
Financial Business Analyst | Army Officer | Blessed Man
1yAwesome!
Finance Expert & Trainer @ Mellor Financial Management | Facilitating Finance Conversations with impact I Driving Business Growth I Make Finance Your Superpower
1yAI is going to be a huge in helping Finance automate certain processes, it will also be a huge asset (pun intended) in helping educate people in a broader context on what numbers actually mean. It's early days but we are rolling out some AI based tools in our Finance Training Programmes with Andy Jack & Candle Digital
Financial Advisor ujkonsult (ELiT) 😊think as a customer
1y👍😎