Financial sentiment is famous for reversing course swiftly, often in the space of a few months or even weeks.
Such a change seems to have taken place in the fourth quarter of 2023. “As we exited last year,” says Robert Purcell, Billtrust CFO, “there was a growing sentiment of optimism.”
Numbers bear out Purcell’s observation. Between Nov. 14 and Dec. 1, 2023, the average optimism rating from CFOs rose to 58, up from 56.2 in the third quarter, according to data by Duke University and the Richmond and Atlanta Feds.
How rosy a future CFOs are forecasting has dramatic implications for AR processes. When all is doom and gloom, notes Purcell, companies tend to “conserve cash and delay big project spends.” When forecasts brighten, companies begin looking for ways to fund innovation.
All of this affects AR processes, sometimes quite dramatically. When borrowing is out of the question because interest rates and the cost of capital are high, “then the cash you have on hand becomes even more valuable,” says Purcell.
In this scenario, he continues, “your speed to collecting cash and how you pay your vendors become a lot more important.” In other words, he says, “From the AR side, the faster you can collect, the better.”
Reading the tea leaves
Much of CFOs’ growing economic optimism comes from stronger earnings, a robust labor market, and increases in IT spending.
It also comes from a sense that the Fed will soon begin lowering interest rates, making it easier for CFOs to borrow and, in turn, push more aggressive and imaginative agendas.
Although lower rates seem possible this year, change may not come immediately. According to the CME FedWatch Tool, which tracks fed funds data, the prevailing belief about a week prior to the January 31 meeting was that there was only around a 2% chance that the Fed would lower interest rates.
Ironically, one sign of financial strength—a robust job market—may be what’s preventing the Fed from acting, says Purcell.
He goes so far as to suggest that “a mini-recession”—and he is quick to emphasize that he does indeed mean a short, not-too-devastating one—would be welcome. That’s because recessions have historically spurred the Fed to begin dropping interest rates quickly and aggressively.
In an environment in which the economy seems on the verge of picking up, Purcell emphasizes three messages for payments planning.
1. A new approach to AR is here
Even if the Fed lowers interest rates and a strong appetite for capital spending returns, Purcell is convinced that a desire to control AR process expenditure through automation will persist.
“The one thing that won’t stop is the need to employ AI and automation,” he says. “Businesses saw the benefits of automation. They may not have gone fully to an autonomous AR or AP process, but they’re going to be doing it sometime in the near future. There’s just no going back.”
2. AI means true productivity gains
One huge difference between today and 15 months ago is the widespread availability of ChatGPT and other generative AI tools.
CFOs are only now beginning to grasp how such tools can boost productivity, maintains Purcell. Early signs of productivity gains are impressive. A 2023 McKinsey study, for instance, found that software developers can complete coding tasks up to twice as fast using generative AI.
3. Efficiency is what funds innovation
No matter what economic events await, Purcell sees the appetite for AR and AP process automation continuing to grow. That’s because greater payments automation leads to savings—which can be used to invest in the innovation of tomorrow.
CFOs, he concludes, have seen the advantages of automation and are eager to “let technology do what it’s capable of doing today.”
