Credit Matters Blog

Technology - An Aid To Cashflow or a Cashflow Killer?

Kim Radok 27 March 2012


Today, it is simply mind blowing what can be done with technology. There is no doubt that many business applications aid the accounts receivable and add efficiencies not previously available .

Dealing with our customers by email for example, is much easier and cheaper than using the normal postal system. For instance we can quickly send copies of invoices by email or complete customer enquiries by typing a quick message and adding attachments to our message.

In addition, it is now much easier and quicker to review complex customer data relating to sales, numbers of credit claims, whether the customer's payments are on time etc. and calculate whether we are making a profit from the trading relationship.

However there are many downsides to using technologies which are not always anticipated by management at first. Most of the problems which are subsequently caused, occur because management believes technology tools can ALWAYS replace human interaction - at a fraction of the cost. There are several problems with these thoughts.

The first problem is why management endorses the technology system. The technology must be cheaper up-front rather than people to do the same work. This is the underlining reason for using technology rather than people processes.

You will also find that most of these changes are for the benefit of the management team endorsing the process change, and not necessarily for the trading entity which employs the management team. Therefore you are more likely to see such changes in the larger corporate enterprises, rather than in smaller businesses.

Secondly, the technology processes will generally not be subjected to a rigorous and fair comparison when compared to the use of people proceses. Therefore, many of the benefits of using technology will be exaggerated and the benefits of using people will be minimised and marginalised.

Thirdly, the technology changes will generally involve the development of a system which is created by IT specialists, who do not consult the employees who have to use the system.

Fourthly, the system is likely to be built to a price not to the best level of effectiveness. The main reason this occurs, is the thinking which surrounds the way accounts receivable functions are viewed by many managers. Mostly, the view is, accounts receivable functions incurr expenses and do not add value to the business.

Therefore the thinking continues, this cheap upfront unit per action processing system, will easily cover any increased expenses incurred later because of any double handling to correct any problems.


Accounts receivable systems in accounting packages.

These systems are often built on manufacturing production line principles that dictate there is only one way of processing items. Therefore, to correct any mistakes, you have to go back to when the accounts were last reconciled before you can go ahead and add the correct figures.

If you want to see how much time is wasted in this process, just visit any large accounts department where the accounts are not regularly reconciled.

However whenever a variance needs to be processed, there is always the person who is authorised to over-ride the system and make the changes anyway.

The automated telephone call.

Recently I was at home when a major utility made an automated call for an outstanding account. The contact was a complete waste of time for several reasons.

First it was to the wrong number, the answers were easily manipulated and finally, there was no capacity to advise the utility that the call was to the wrong number.

In this situation, the utility wasted the cost of the call and the information recorded would have corrupted the information already held in the account notes. Furthermore, who knows how long it would have been before the error was discovered, the information corrected and additional costs incurred?

In each of these two examples, a cheap upfront technology process was employed. Worse, there was still no guarantee the business would have been any closer to the cash.

May you be paid today rather than tomorrow.

Kim Radok