There’s a lot of tradition in the food and beverage industry. Eating and drinking is an industry as old as time, which is reflected in the way a lot of distributors do business: They’re old school, often using pen, paper, and a lot of manual processes.
For many food and beverage distributors, this is simply all they know. However, in the digital age there are more efficient and cost effective ways to do business. With a few small changes, distributors can save time and money while creating a better experience for their restaurant partners and other customers. One of those changes is introducing accounts receivable automation.
With today’s technology almost any business can automate manual processes to become faster and more efficient. Ready to see how accounts receivable automation can help level up your food and beverage distribution business? Read on.
What Is accounts receivable?
Accounts receivable (AR) refers to the money that a business is owed by its customers for goods or services that have been delivered but not yet paid for. AR represents a company’s credit sales that have not yet been collected and is considered an asset on the balance sheet.
When a business sells goods or services on credit, it issues an invoice to the customer that details the amount owed, the payment terms, and the due date. The customer then has a certain amount of time to pay the invoice (typically within 30 to 90 days.) Once the payment is received, their AR balance is reduced accordingly.
AR management is an important aspect of a company’s financial management, as it affects cash flow and profitability. Businesses need to monitor their AR balance, follow up with customers who are past due on payments, and take appropriate actions to collect outstanding debts.
Why Is accounts receivable so important for food distribution?
Many food and beverage distributors make sales on credit, meaning their customers place orders, receive orders, and then pay for them after the distributor invoices them.
But AR management comes with particular challenges for food and beverage businesses, who often operate with tight profit margins and have inventory that has a limited shelf life.
One of the primary reasons why AR is important for food distribution businesses is that it represents the money that the business is owed for the products it has delivered. In the food distribution industry, when a business operates on credit terms, it means that they deliver products to their customers and then wait for payment to be made at a later date. This can put a strain on the distributor’s cash flow, especially when they need to purchase more inventory and pay their own bills while waiting for payment from their customers.
Days sales outstanding (or DSO) is a financial metric that measures the average number of days it takes for a company to collect payment from its customers after a sale has been made. In their Q3 2022 U.S. Accounts Receivable and Days Sales Outstanding Industry Report, Dun & Bradstreet and the Credit Research Foundation found that some types of food and beverage suppliers—namely wholesale packaged frozen goods distributors—are among the most common industries that get paid late for orders. Good accounts receivable management is key to helping distributors reduce DSO—improving their cash flow, inventory management, and profitability in the process.
Another reason AR is important for food distribution businesses is that it allows them to monitor their customers’ payment behavior and identify potential issues before they become serious problems. By tracking their AR balances and following up with customers who are past due on payments, distributors can identify customers who may be struggling to pay their bills or who may be unlikely to pay at all, resulting in bad debt. This allows them to take appropriate actions, such as adjusting credit terms or even discontinuing service to customers who consistently fail to pay their bills.
What is accounts receivable automation?
Accounts Receivable (AR) automation is the process of using technology tools to streamline and optimize the accounts receivable process. This involves automating manual tasks, such as generating invoices, sending reminders for overdue payments, and reconciling payments received. Since these tasks tend to be time-consuming and prone to human error, AR automation can make a business’s AR process both faster and more accurate.
There are many different ways to automate accounts receivable. Depending on the type of business, it can involve integrating different types of software, like accounting software, customer relationship management (CRM) systems, and payment processing tools, to create an end-to-end solution that handles all the different aspects of AR management. Very large businesses may even incorporate ERP systems (or Enterprise Resource Planning)—but most food and beverage distributors have more straightforward needs, and can get by with an AR automation solution built for restaurants and distributors (but more on that later in this article).
What are the benefits of accounts receivable automation?
We’ve already touched on some of the benefits of AR automation: increased efficiency, better accuracy, and a lot of time savings. But let’s take a look at the benefits in more detail.
1. Improved accuracy
AR automation can eliminate errors that can occur when data is manually entered into an accounting system, such as typos or transposed numbers. By automating the process of capturing payment information and matching it to customer accounts, AR automation can reduce the risk of errors and ensure that cash application is accurate and all payments are applied to the right customer accounts.
2. Faster processing
Automation reduces the time it takes to complete manual processes—such as customer invoicing and payment reconciliation—allowing businesses to collect faster payments. In many cases, AR automation allows businesses to transition from paper invoicing to electronic invoicing (or e-invoicing), which reduces the time it takes to both create the invoices and send them to customers.
3. Cost savings
Automation reduces the need for manual labor and paper-based processes, resulting in lower staffing and administrative costs. Where you may have needed an entire accounts receivable team to manage manual tasks like creating invoices and processing payments, when the process is automated, your staff can focus on what really matters—building relationships with your customers.
4. Improved cash flow
Faster processing and reduced errors mean that businesses can avoid late payments and resolve outstanding debt more quickly. This improves their overall cash flow.
5. Better customer experience
Automation can improve the customer experience by providing more timely and accurate information about invoices and payment status, and reducing the need for customers to follow up on payment issues. It can also streamline your accounts receivable collections process, sending automated payment reminders that help customers stay on top of their invoices.
7. Comprehensive data and reporting
Because AR automation software takes the entire accounts receivable process digital, it opens up a whole world of data analysis and reporting capabilities for your AR team.
AR software often includes dashboards filled with real-time data about AR performance and overall financial health. This can include metrics related to collection performance, cash processes, customer performance, dispute management, trend forecasting, and more.
How accounts receivable automation can level up your food distribution business
At The Butcher Shoppe, a Toronto meat wholesaler serving restaurant and hotel customers, everything is made the old-school way. But that didn’t mean business processes needed to be old-school, too. Before 2020, The Butcher Shoppe had a laborious process for handling transactions by hand.
“A chef would call up, place a custom order and give us their credit card number. Then we’d go onto our computer, type the number in, add it to the invoice, tally up the amount, process the card, take the receipt, email the receipt and post it to our ERP system. And we did that 150 times a day,” explained Stacey Weisberg, who joined the family business over a decade ago. “We had close to three people doing that work full time at least six days a week and on calls pretty much 24/7 because restaurants don’t keep traditional business hours.”
This is a scenario that will sound all too familiar for many small businesses, especially those in the food and beverage industry. But they can all learn from how The Butcher Shoppe solved its AR headaches: accounts receivable automation software from notch.
“I saw how many credit cards we were processing here in the office, and how slammed our team was. And I thought, I can walk into any cafe or restaurant and just tap my card and it works. So surely we could do the same here?” Stacey said.
That’s what notch brought to the table. notch AR manager automates workflows like data entry and card processing, saving finance teams hours each week and turning paper invoices into a pain in the past. notch automatically pulls digital invoices directly into the system and eliminates physical credit card swiping by keeping billing details securely on file. Plus, it gives your customers even more payment options, including ACH/EFT, terms, and self-service online payments. That means you get paid faster—and your cash flow gets optimized in the process.
For Stacey and the rest of the crew at The Butcher Shoppe, the benefits of AR automation were immediately clear:
- Customers are automatically charged as soon as steaks are cut and the weight goes into the invoice.
- Because of the faster processing, customers make faster payments, and The Butcher Shoppe has better cash flow than before notch.
- Most importantly, staff who used to dedicate hours to manually processing credit cards and applying payments can now spend their time on higher-value work that helps the business grow.
“I would advocate for this technology to anyone in our industry who is still putting pen to paper,” Stacey said. “While we still do business the old-fashioned way, we’re using technology to help us do our jobs quicker and less administratively. There’s so much room for growth and innovation in the foodservice space. Piece by piece, we’re working in partnership with notch to bring our industry into the 22nd century and to a better, tech-enabled way of doing business.”
How to automate accounts receivable for food and beverage businesses
notch has all the functionality food and beverage businesses need to automate their accounts receivable, plus:
- Reduce DSO
- Optimize cash flow
- Eliminate data entry errors
- Save time (and money) each week
- Build better customer relationships
But just any accounts receivable solution may not be the right fit. You need notch, the only all-in-one operations platform for restaurants and distributors.
Ready to see what notch can do for your business? Schedule a demo today.