Accounts Receivable Software on the Rise with Manufacturing Companies
In the past, the manufacturing industry used paper-based and labor-intensive methods that, today, are becoming increasingly out of date. CFOs in the manufacturing industry are starting to understand how important digitization is, especially when it comes to receivables. Recent surveys show that as many as 78% of manufacturing CFOs are looking to transform their processes due to economic uncertainty.
In an industry with narrow profit margins, manufacturers are increasingly looking to adopt new software solutions for effective cash flow management in order to ensure growth and sustainability. For this reason, more manufacturers are turning to accounts receivable automation and other financial management software to streamline their operations and optimize their cash flows. Modern manufacturing companies encounter many challenges, and it is critical for them to address these issues by restructuring their focus and priorities.
Outdated Processes Hinder Manufacturing Industry's A/R
Manufacturing companies rely heavily on outdated and manual processes, using significantly more paper for checks and invoices than other industries. On average, it takes 10 days just to process a single invoice after receiving it, which can be delayed longer when dealing with paper and corresponding disputes; conventional invoicing procedures that involve paper also leave room for errors and keep your team in the dark. These slow and disorganized invoicing processes can cause payments to be late or missed entirely, which can have disastrous consequences for high-value invoices that are common in the manufacturing industry.
Manufacturing CFOs Refocus on Receivables and Supplier Relationships
Because of problems with cash flow, manufacturers often have to go into debt to get the supplies they need to fill future orders. In an industry where profit margins are already low and are compounded by supply chain logistics, it is important for CFOs to put the focus back on effective cash management to prevent increasing debt.
With outdated processes, manufacturing A/R teams find it excessively challenging to follow up with customers regarding unpaid invoices. On average, nearly 30% of manufacturing companies’ receivables reach more than 30 days past due (half of which were over 90 days past due). Improving the relationship between buyers and suppliers is a top priority that requires technology that can track invoices and send automatic payment reminders.
The Transformation of Manufacturing Industry’s Processes is Inevitable
Many manufacturers are still using legacy systems for their ERPs, which not only hurts cash flow but also hinders effective communication between accounting team members and their customers. These outdated systems and processes require a higher headcount to handle the tedious workload and make it more difficult to train new team members. Additionally, they jeopardize the company's financial stability by increasing the risk of employee turnover. Manufacturing companies must look to transform and optimize their accounts receivable processes to reduce turnover, improve communication, and increase cash on hand.
With the current economic uncertainty, it is increasingly important for manufacturers to have enough cash on hand. More than 90% of CFOs think there will be a global recession in the next year because of high inflation and rising interest rates. Companies are working hard to mitigate economic challenges by integrating digital payments, improving cash flow management, and leveraging automation in a way that provides liquidity, increases efficiency, and reduces errors.
The best cash flow management tools help manufacturers scale processes without having to add additional headcount. They help increase visibility and the tracking of invoices, effectively communicate with customers, automate collection follow-up, and integrate seamlessly with ERPs.
Are your A/R processes labor-intensive and hindering your collections?
Speak with a cash flow expert today to learn how a cash performance management tool like Tesorio can help free up cash for your manufacturing business.