The Status of AR Management in Europe
Prior to the Covid 19 pandemic, the four major European regions all enjoyed a reduction in DSO (based on leading firms in major sectors of the economy) over a period of several years:
- Northern Europe – decline in DSO from 53 to 50
- Southern Europe – substantial decline from low 90’s to 70
- Nordics – from mid to low 50’s
- UK – from upper 40’s to upper 30’s
The Challenges in 2021
There are a number of key challenges to managing the AR Asset for European Companies for 2021. Among them are:
- The impact of the Covid 19 Pandemic on European growth. Across Europe, GDP growth in 2021 is expected to regain about 60% of the GDP decline in 2020, with the exception of the UK, whose growth will recover only about one-third of the 2020 decline.
- Government supported cash flows in 2020 are moving to payback in 2021.
- Continued low interest rates. The payback for investing in liquidating AR for companies with adequate cash is low. However, for companies with inadequate cash resources, converting AR to cash is critically important.
- Traditional Cross-border culture, language and credit term levels.
- Government mandated payment terms and e-invoicing for Suppliers, concentrated in Business to Government (B2G) commerce.
PSD2 regulation governing electronic payments
So, how can these challenges be met and overcome?
The fundamentals of excellent AR management will, as always, provide much of what will be required to meet the AR challenges of 2021. In addition, it will require an understanding the local issues, influences, and regulations affecting AR performance in the local economy.
Training of staff in the fundamentals of working capital and the value of cash is essential, so staff can conduct their daily operations in a way that optimizes the company’s cash position.
Accuracy and quality in fulfilling and invoicing customer orders is a major driver of excellent receivables management. Disputed AR typically comprises at least half of all AR more than 10 days past due. Excellence in order fulfillment and invoicing pre-empts most disputes.
The other major solution to these challenges is automation. Automation to increase productivity, accuracy, AR portfolio coverage, faster customer response, higher quality credit vetting, and analytics capability. Automation applications for the processes of AR operations and management have been used for decades, embedded in ERP’s and available as separate applications.
However, the emergence of newer technologies such as Robotic Process Automation (RPA) and especially Artificial Intelligence (AI) Digital Assistants have increased capabilities exponentially in the past few years in Credit Risk Management, Collections, Payments Processing, Deductions and Cash Application.
A key requirement for AR automation technology in Europe is the ability to accommodate multiple languages, currencies, local practices, and regulations.
Other key capabilities are
- Electronic invoicing that can be customized to individual country or customer requirements.
- The ability to accept digital real time payments in all their forms. This capability is a key contributor to an enhanced customer experience, as well as accelerating cash receipts.
What Level of Benefits Can be Achieved in 2021?
For some companies in industries severely impacted by the pandemic economy, the minimization of deterioration of the AR asset may be a realistic expectation for 2021. For other companies (especially those whose industrial sector is expected to improve), a significant net improvement by the end of the year is a reasonable goal.