Top of Mind: The New A/R Technology Landscape

Take your eyes off working capital long enough, and days sales outstanding (DSO) will creep up on you and bite you. This seems to have happened on a national scale during the past 12 months as companies concentrated on selling into an expanding economy. After hitting a 10-year low of 40 in 2006, median DSO for U.S. companies rose to 41.15 in the second quarter of this year, according to data from the Credit Research Foundation.

Nudged by the credit crunch, business bankruptcies are on the rise, too, adding to the pressure on companies' collection departments. "In times like this, the supplier is the one who gets to act as a banker for the customer," says Dorman Wood, co-founder and president of process-improvement firm Dorman Wood Associates. Deductions tend to increase, and not all of them are legitimate. "It's just another way of delaying payment," notes Wood.

All of which is good news for receivables and collections management (RCM) software vendors. Companies looking to plug holes in their revenue pipeline and build a more effective A/R operation are taking a close look at this technology and finding that there's a lot to like. The RCM sector, one of the most dynamic in the finance software market, has seen some big changes in the past couple of years, and nearly all of them are beneficial for purchasers.

Most high-end RCM packages have included solid dispute management and reporting and analysis functionality for some time, but these products tended to be weak at the front end of the cycle: customer credit management, invoice generation, and remittance processing. Now vendors have filled those gaps, either by building out their products or acquiring other players with the specific functionality they needed.

In February, for example, SunGard bought receivables management software provider Aceva Technologies to roll into its AvantGard product. "Aceva was the first to come out with a really effective pre-transaction reconciliation package, so that filled a gap in SunGard's AvantGard line," says David Schmidt, senior analyst with PayStream Advisors. The move has helped the company to compete against the ERP systems on a global basis, he adds.

ERP providers' A/R offerings have grown steadily more competitive with best-of-breed products, according to PayStream Advisors. "SAP and Oracle now have full-blown systems," notes Schmidt. But Wood is unconvinced that ERP is the way to go for companies that want a comprehensive receivables solution. "From my experience, it's almost going to be impossible to only run a few modules on an ERP system," he says.

The order-to-cash process is extremely complex, he points out. "It involves everything from the point of entering an order to the point of applying cash to offset that order, and -- depending on how sophisticated a company wants it to be -- it can even involve the manufacturing process. You can't just have bits and pieces if you're going to have a system that fully supports your company's operation."

While Schmidt advises companies to view their processes holistically, he notes that narrowly defined point solutions can help with specific bottlenecks. "Collection and dispute management has payback in three to nine months, and we've seen some implementations pushing down to just one month," he reports. "I'd be hard pressed to think of many companies that didn't get a payback in nine months unless they really messed up the implementation." Tools that improve invoice accuracy, prebilling quality control, and transaction reconciliation can also provide payback in under a year, he adds.

A truly holistic view of accounts receivable and the benefits of the technology must take into account another strong trend in the RCM software space: the outsourcing connection. Most of the major vendors now offer outsourcing services directly or through a partner. "The growth of that has continued apace," says Schmidt. "There's continued recognition that to do outsourcing right, you've got to do the technology with it. You've got to be on a shared platform."

Companies that get it right achieve big gains in flexibility for their A/R operation. "It becomes an extended credit department, from an internal management view," says Schmidt. "If I have an outsourcer and we're on the same platform, I can allocate work to my outsourcing company as needed, rather than necessarily doing it all."