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Positioning for company success during and after the pandemic.

In response to the global health pandemic surrounding COVID-19, many businesses and organizations have faced some harsh realizations. Organizational weaknesses that seemed insignificant before suddenly have a spotlight on them, such as forecasting and operational preparedness. With revenue significantly disrupted, liquidity and operational risk are nearly impossible to predict. And for companies using outdated paper-based or heavily manual processes, employees are unable to complete critical tasks remotely, placing the company in danger of missing funds and/or souring longstanding business relationships.

It’s vital for businesses and organizations to learn from the pandemic’s lessons. The internal weaknesses that were exposed can be easily strengthened by slightly shifting the focus to improving data capture and streamlining processes, especially where money comes in and leaves the company – the accounts payable and receivable departments. In fact, the importance of treasury, accounts payable, and accounts receivable departments to a business’ livelihood is now crystal clear.

Leaders should start looking for ways to position their organizations for success in the future even though the economic effects of the pandemic are still wholly unknown. While they may have found some short-term solutions to help get through stay-at-home orders and decreased revenue, digital adoption will be critical for medium- and long-term success.

Top 3 Priorities

There are 3 priorities that will help businesses and organizations create better financial health: accurate liquidity management, working capital optimization and operational enablement.

Because historical data is no longer accurate in light of the pandemic, constant liquidity forecasting is necessary. Leaders should aim for a 60-day forecast, which will require daily communication between all teams. Companies not yet forecasting this far out need to concentrate on building this capability as soon as possible. Companies that are forecasting may still need to make adjustments to ensure communication and accuracy is prioritized daily.

The second focus – optimizing working capital – will have residual effects for the entire supply chain, so it’s important to place a greater emphasis on supplier relationships during times of crisis. Companies should create a prioritized list of supplier payments – who gets paid first and how much – and work with other suppliers to determine a payment schedule of either full or partial payments. Of course, data is crucial for this strategy. Companies that do not have the data to create such a list on-the-fly should start looking for digital solutions for accounts payable.

Likewise, as organizations prioritize who to pay first, they also need to know how many payments they can expect to receive from their customers. Again, constant communication will be critical to optimizing working capital and managing liquidity. Any business that doesn’t have these capabilities now should look to rectify that soon.

Finally, operational enablement is key to keeping the ship afloat. Many businesses were not prepared to operate remotely on a long-term basis, and the reduced capacity of employees has greatly impacted productivity in many departments. This is especially true in accounts payable and receivable departments with paper-based processes and limited trained staff. When these teams are not enabled to work remotely, an illness or absence can greatly impact the timeliness of incoming and outgoing payments – a huge issue when liquidity can’t be forecasted and capital isn’t optimized.

The issue of paper-based processes and lack of digital tools can now be easily fixed thanks to advances in payment technology over the last decade. There are plenty of solutions available in the market that will streamline the accounts payable and receivable areas and will ensure that businesses can make and receive payments during stay-at-home orders and other business disruptions. More on that below.

How AP and AR automation can help

As these areas are crucial to the movement of funds, digital solutions in these areas should be a priority for operational enablement.

Many Accounts Payable (AP) and Accounts Receivable (AR) departments are still largely paper-based. This presents a number of challenges during everyday business operations, which were compounded by the stay-at-home orders due to the COVID-19 pandemic. This is because almost all tasks require staff to be physically onsite:

  • Paper mail is still largely used to send/receive invoices and payments.
  • Physical signatures/stamps required for approvals.
  • Invoices and checks need to be printed at the office.
  • Paper invoices and receipts need to be filed and stored for future reference.

In addition, tracking during these paper-based payment processes is incredibly difficult, which makes cash and liquidity forecasting nearly impossible. Businesses and organizations should look to convert to electronic processes as soon as possible, including payment collection (like a lockbox or online payment portal), disbursements (outsourcing mailed checks or converting to electronic formats), and paper invoice automation (sending invoices to customers as well as receiving from suppliers).

Automation solutions also enhance data capture, boost communication with suppliers, cut business costs per payment, and in some cases, can even generate new revenue. But there are many solutions and providers to sift through. Commerce Bank can help business leaders identify their priorities and find the solutions they need. We use a consultative approach and can partner to provide:

  • A variety of AR solutions to streamline your collections, like lockbox services.
  • AP solutions to help lower your costs per payment and convert checks to card payments.
  • Integrated solutions that take your entire ecosystem into account to identify new efficiencies.

What comes next?

In the short-term, business and organizations should remain focused on 3 areas (liquidity management, working capital optimization and operational enablement) until they are able to stabilize after the pandemic.

In the medium-term, focus should shift to migrating to the cloud, creating digital processes to enable operations, and mitigating business risk (if they have not already done so).

In the long-term, it will be time to look at true optimization, including centralizing treasury and financial departments, optimizing capital structure and fully enabling remote operations.

The timeline of these goals remains to be seen, as we are still in the early stages of the pandemic’s effects. Still, learning the lessons presented by the COVID-19 pandemic will be crucial for company success in the future.

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