SaaS field notes: accounts receivable

Initial Hypothesis: an underlooked function

By Thomas Ryan, Eugene Lee and Justin Ouyang

Over the past couple of years, the team at OMERS Ventures looking at SaaS businesses that serve functional business areas across multiple markets (Horizontal SaaS) has spent a number of cycles within the Office of the CFO (read more about our thesis here) and most recently led an investment into Mosiac. Our latest focus within the enterprise finance department has been in accounts receivable, an underlooked and unloved function within a historically underlooked and unloved business unit. Our initial hypothesis was two-fold:

• Landing cash: Efficient accounts receivable (AR) processes drive cashflow efficiency; within our own portfolio we have seen how effective collections teams (+ upfront cash collections) can turn a negative accrual accounting quarter to cashflow breakeven based on optimized working capital cycles. With the current emphasis on driving profitability, this dynamic has never been more important.
• Limited innovation: Relative to other areas within the Office of the CFO such as accounts payable (AP) or spend management, the accounts receivable function has received relatively little attention; processes are still paper-based, manual and cumbersome.
• Underinvestment: Unlike revenue drivers in the business, budgets do not flow as easily into these cost-centric functions, forcing collections professionals to do more with less. Our initial belief was that the ROI for this product suite would be straightforward.

What we saw

When we’ve spoken to collections teams, our conversations surfaced a couple of recurring themes:

• Poorly optimized collections processes: Collections teams are dedicating a disproportionate amount of time to low-value tasks; whether that be manually running dunning processes or focusing on low dollar amount accounts. It is clear there is considerable waste within the current collections workflow.
• Communications gap: Collections teams struggle with a lack of communications. Poor dunning processes impair relationships with customers; poorly timed email follow ups lack valuable context around delayed payments and existing platforms offer impersonal templated approaches that can strain vendor-client relationships.

Together, just these two pain points alone indicate both money and productivity being left on the table. In addition, there is a real risk of straining customer relations through impersonal dunning campaigns (many of which are the result of incumbent providers workflow).

However, the most recurring pain point that we found was an upstream problem — billing. With the increasing complexity in how many products (both SaaS and non-SaaS) are delivered, many of the issues that plague collections organizations begin with upstream billing problems. Services are billed incorrectly, customers do not understand their invoices — it is not so much a bad counterparty issue as a confused counterparty issue. (but we’ll save that for another post).

What are we thinking about?

We are looking to meet founders addressing both the inefficiencies in the current accounts receivable workflows, but also thinking about the upstream billing issues that plague most enterprises. In our view there is a real opportunity here to build a platform around improving product billing cycles, enhancing coordination with accounts receivable teams while offering compound products such as invoice factoring.

Ultimately, The Office of the CFO as a function is becoming more strategic; landing cash in an accurate and timely manner will allow finance organizations to confidently forecast cash positions and ultimately allocate capital more efficiently.

If you’re a founder in the AR space, we’d love to chat. Our DMs are open. Thomas Ryan, Eugene Lee and Justin Ouyang.