Calculating the value of accounts receivable automation with Forrester’s Total Economic Impact model

This article is based on the webinar: How to calculate the value of AR automation using Forrester’s Total Economic Impact™ Model originally broadcast on August 12th, 2020. The webinar featured guest speaker Andrew Bartels, Vice President and Principal Analyst at Forrester and Shawn Burchfield, Vice President of Solutions Consulting at Billtrust.

Forrester’s Total Economic Impact (TEI)™ model is one of the most robust methods of evaluating the value of investment in accounts receivable automation. TEI™ is a proven methodology that takes into account all of the benefits and risks associated with a given technology investment – even those that go beyond the immediate area of impact.

Why is using Total Economic Impact™ better?

The traditional model for evaluating a technology investment is to look at return on investment (ROI) which considers two variables: the cost and the direct benefits. But TEI™ adds two additional variables: risk / uncertainty and flexibility benefits.

Risk / Uncertainty: This variable examines the new technology’s ability to reduce risks to the business. But it also takes into account risks of the technology itself. Newer technologies are prone to having uncertain outcomes due to their relatively untested nature. There could be unforeseen IT complications or new workflow challenges.

Flexibility benefits: This variable takes in account benefits that are not direct, but that help the business become more flexible in their efforts to achieve different business outcomes.

What are the direct benefits of accounts receivable automation?

The direct benefits of an AR automation investment can be calculated based on time savings, lower fees and increased cash flow. Some examples:

• Presentment of electronic invoices saving costs on printing and mailing invoices
• Having a record of the status of the invoice at the customers, thereby saving staff costs related to calling the customer
• AR automation shifting buyer payment behavior towards lower cost payment channels like ACH

What are the flexibility benefits of accounts receivable automation?

The flexibility benefits of AR automation are probabilistic. They increase the probability of good outcomes and reduce the probability of bad outcomes. Some examples:

• As more buyers adopt accounts payable automation which tends to shift more work to the AR side, AR automation will help AR teams quickly serve their buyers, which is likely to increase customer satisfaction and retention.
• Faster and more accurate invoice delivery increases the likelihood that the customer will pay on time, reducing credit and collections costs.
• Employee morale will likely be improved by eliminating redundant and repetitive activities in their day-to-day.
• Should the need for a remote workforce occur (as has happened during the COVID-19 crisis) AR automation investment help ensure business continuity.

Accounts receivable automation allows businesses to decelerate the growth of their AR cost structure, improve their cash flow and reduce bad debt.

Decelerate the growth of AR cost structure

By increasing the efficiency of a company’s existing labor, AR automation allows the company to grow their business without needing to expand the AR labor force. Additionally, AR automation can help lower interchange fees for accepting credit card payments.

Improve cash flow

Digital AR processes are faster than analog processes. When credit decisioning, invoice delivery and cash application are sped up through AR automation, a company’s cash flow accelerates – growing their working capital and shrinking their DSO. Increased working capital and decreased DSO have tangible benefits. Faster AR processes also lead to quicker sales cycles and more quickly replenished customer credit – leading to greater sales potential.

Reduce bad debt

Accounts receivable automation uses big data and artificial intelligence to help credit managers make smarter and faster credit decisions – reducing the number of accounts that end up in collections. Additionally, collections automation solutions help collectors do their work more efficiently, speeding the collection process.

Invoicing:

• Invoice volume
• Cost per invoice
• Electronic adoption rate

Payments:

• Interchange fee savings
• Faster payment reduces opportunity cost
• Transfer from check to ACH reduces transaction costs

Cash application:

• For bank keying
  • Lockbox savings
  • Labor savings with bank keying scenario
• For in-house keying
  • Labor savings with in-house keying scenario

Credit and collections:

• Overdue receivables
• Account prioritization and frequency of touches

Billtrust uses the AR process assessment in order to take a deep look at your company’s environment and to understand the steps required to achieve your business goals.

If you’d like Billtrust to help you analyze the accounts receivable automation solutions that you are considering, please fill out the Contact Us Form on this page.