Process Mining: The What, Why and How Behind the Best Practices for Accounts Receivable

On paper, it’s simple: your Accounts Receivable (A/R) department creates an invoice, sends it out, and sees it approved and paid. So why is that so rarely the reality A/R departments actually experience?

The truth is, as with any process with lots of moving parts (and people), A/R is full of opportunities for things to go wrong. From late invoices to incorrect terms, price changes and underpayments, it’s rare for payments to come into the company without hitting some kind of bump on their journey.

In fact, our recent State of Business Execution Benchmarks report found that the average company’s Average Days Delinquent for invoices is 29.9 days. Things are going wrong — and they’re going wrong consistently.

But there is a silver lining. If you’ve got inefficiencies? That also means you’ve got opportunities for improvement.

If you can find a way to prevent invoice rejections, reduce manual errors, and eradicate the hours spent chasing clients unwilling or unable to pay, you can reduce Days Sales Outstanding, Average Days Delinquent, and improve virtually any A/R KPI – all while dramatically improving your organization’s cash flow.

However, the challenge lies in accurately identifying where things are going wrong. There are a lot of moving parts in A/R processes, and everyone likely has their own somewhat biased opinion on where issues are coming from. You need a way of sorting through the noise, and diving into data to surface issues with pinpoint accuracy. That’s where process mining comes in.

Process mining: a superpower for AR

Process Mining is a technology that draws on the event log data buried in your transactional systems to paint a living, breathing, moving picture of what your processes really look like — and every way they deviate from the norm.

It is at the heart of many businesses’ efforts to optimize the effectiveness of their most critical workflows — and often used as a stepping tone for other technologies like automation and execution management systems. We’ve previously identified it as one of the three technologies driving digital transformation in Accounts Receivable, and for good reason.

Process mining allows you to gain an accurate, detailed, and unbiased view of how your accounts receivable processes are performing — providing a single source of the truth that everyone in your organization can agree on and act upon.

With deep-dive information, presented in an easy-to-understand visual way, you can gain access to three vital insights your A/R department needs to optimize efficiency, effectiveness and execution capacity.

Firstly, you can see exactly what’s really happening with each of your processes at a granular level. Secondly you can learn why these things are happening. And thirdly, you can identify the areas you should prioritize for improvement.

The What: an in-depth view of every process and its impacts

They say the first step to fixing a problem is admitting you have one. And if that’s true, the second step is figuring out exactly what it is.

If your accounts receivable department is full of experienced professionals who know the industry inside out, they’re almost certain to have their own hunches about where things are falling short. But those theories — while not necessarily inaccurate — are seldom based in fact. This is one reason identifying process inefficiencies and execution gaps can be so difficult unless you bring data to the table.

With process mining, hunches and gut feelings are out of the window. Instead, insights are derived purely from system data, so you get a single source of truth, at an incredibly granular level.

With a visual map of all deviations from the ‘ideal process’, whether it’s a late payment or faulty invoice — so you can see at a glance what’s going wrong.

You can then dive into the details to discover how often the flagged issue is happening, under what circumstances, and what impact it’s having on your KPIs.

Process Mining can also be combined with Task Mining — adding user interaction data to the mix, like calling customers or emailing accountants, for a complete picture of how the work gets done.

The result is detailed and irrefutable proof of where your inefficiencies really lie. Which makes it that much easier to take the right actions to improve A/R performance.

The Why: finding the root cause of your problems

Having insight into where your A/R processes fall short provides a vital foundation for improvement. But it’s only the first step. The next thing you need is to know why those problems are occurring.

This is another area where process mining can provide vital insight, letting you drill down into individual issues and root out their underlying causes.

By benchmarking different service centers, regions, or company codes against each other, you can see if certain clients, products, or offices are causing shortcomings in your A/R processes. You can then explore the nature of these problems and start thinking about the solutions needed to make improvements.

For instance, you may discover that frequent payment delays in a particular region are being caused by incorrect pricing, and that will boil down to faulty master data. This is something relatively easy to fix. But only if you know that’s where the problem lies.

Alternatively, you may find that manual invoice creation is resulting in errors and delays, which suggests automating that particular workflow could have a huge impact on your department.

Another added benefit is that once you’ve identified these problems, you have the data you need to make a water-tight business case for the investments required to tackle them.

The How: knowing where to prioritize your investments

Knowing what your problems are and what causes them is one thing. Knowing which ones to tackle first is an entirely different matter.

In many A/R departments there are countless inefficiencies that add up to make a big impact — and some are easier to address than others.

For instance, you might find that you have a problem with companies delaying payments. And in seeing the impact this has on your cashflow, you may be desperate to fix it right away. But the reality is, if a company isn’t willing to pay, it’s probably because they’re not able to. And no amount of chasing will change that.

Process mining allows you to correlate existing execution gaps with the KPIs you really care about, so you know exactly what problems to solve in what order and go after the things that will actually have an impact. So maybe you don’t go after somebody who’s not likely to pay, but you can make sure that all your invoices go out on time.

You can clearly quantify the impacts underpayments, invoice errors, manual entries, and disorganized data all have on your cash flow targets, DSO, collections effectiveness index, cost per collections and more. Which makes it that much easier to know what you need to tackle first to have the biggest impact on your top priorities — or indeed to pivot when that priority changes.

Essentially, process mining provides vital context to the inefficiencies you have, quantifying their genuine impact for the first time, and enabling you to adjust processes accordingly.

Process mining: the first step towards a more efficient and effective future

Process mining is a valuable tool for identifying the execution barriers in your A/R department, knowing why they’re happening, and identifying what you tackle first.

At Celonis, we’ve used process mining to help clients like Sysmex reduce their past-due receivables by 60% in less than a year. Others like IQVIA freed up $10M in working capital, and Perstorp reduced their invoicing lead time by 25%.

But while process mining is the first step to identifying those opportunities, the real value comes to light when it’s paired with automation, AI, and machine learning capabilities, as it is in an execution management system (EMS). Together, these technologies can help A/R departments master intelligent execution by identifying and taking automatic, AI-driven action to eliminate process problems.

Historically, applying these applications and enabling them to work together has been a huge challenge in itself, often requiring a blend of different solutions that results in numerous integration challenges.

The Celonis Execution Management Solution combines all of these things, from process mining to the latest in AI and machine learning technology, in one convenient and easy-to-use package.

To learn more about how process mining can help improve the efficiency of your A/R department, check out our Collections Management Execution App demo.

Divya Krishnan

Director of Product Marketing