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How AR Creates Value For Accounting Through Data

When it comes to back-office digitization, Matthew Shanahan, chief strategy officer and co-founder of Lockstep, is seeing the same things many other business leaders have witnessed in the last two years: Market disruptions are elevating the need for more agile and insightful back offices, while remote work is driving adoption of automation technologies.

Data integration is a key component of optimizing financial workflows. For Lockstep, which recently announced a Series A+ funding round from Amex Ventures, one of the largest opportunities in this regard is through connectivity between accounting and accounts receivable (AR).

It’s also one of the areas in need of the greatest effort to modernize.

“Ninety percent of accounting departments rely on Outlook and Excel to work with accounts receivable and their counterparts,” Shanahan told PYMNTS in a recent interview. “Sales doesn’t use Outlook and Excel. No other departments do — everybody else uses automation.”

Understanding the relationship between accounting, AR and AR’s own ties to business customers’ accounts payable systems is crucial to enhancing accounting strategy, he explained.

Accounting’s AR Goals

Accounting departments hold high-level goals of promoting financial visibility and health across the enterprise. Accounts receivable is a natural component of that effort, but these functions are often siloed.

Embracing connectivity can overcome that barrier and help organizations elevate the transparency of cash flow data. But AR has a similar objective to achieve: bridging the gap that traditionally separates itself from business customers’ accounts payable departments.

“Our AR system can detect what is the payment behavior of each AP department, and therefore predict when cash is coming in, based on their payment history,” said Shanahan, adding that this is “absolutely a part of understanding payment behavior and being able to track that over time is really critical.”

As access to credit grows more challenging, he said, accelerating the acceptance of payments from customers remains the most affordable and efficient way to obtain capital. Beyond predicting when those payments will flow in, it’s also critical to have the technological capacity to receive promises from customers for eventual payment or setup support for payment plans.

Driving Optimization Through Digitization

The data connectivity that has become of such paramount importance to efficiency, automation and cash flow predictability has been given a major boost from the accelerated pace of electronic B2B payments adoption, said Shanahan.

As such, accounts receivable teams must think wisely about how they interact with business partners’ AP departments so that they can best serve their own internal accounting teams.

“If you send paper, you should expect to get paper back,” Shanahan noted. “The first thing is helping the presentation [of the invoice] — stop sending paper invoices.”

While many organizations might assume that their corporate customers would not appreciate the change, he added that the majority of firms prefer to receive invoices electronically. But that is one component to optimizing AR’s ability to deliver meaningful data and efficient collections.

Just as important is delivering a B2B payment experience that is seamless and friction-free. While some organizations may not have the capabilities to initiate ACH or other electronic transactions, suppliers have an opportunity to support such ePayment methods and elevate the experience further through features like autopay.

By understanding the needs of one’s business partners and their own AP teams, accounts receivable operations can hold more meaningful connections to accounting teams. Often, electronic B2B payments is a great place to start.

“An AP department may not have an ACH solution they can issue electronic payments with, but they won’t take advantage of ours if you provide it to them” if it merely adds more friction and hassle to the payment process, noted Shanahan. “They’ll adopt it because it is saving them time and effort. You always have to create value for the counterparty.”

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