Accounts receivable (AR) is one of the most critical and high-volume processes that organizations carry out. Delays in this process mean less working capital and liquidity, making AR one area where improving efficiency can pay off exponentially.
One good way to measure the efficiency of your AR process is by tracking the number of full-time equivalent employees (FTEs) it takes to carry out the process. Simply put, the fewer people it takes to do the job, the more likely your team is doing the work in the right way. After reviewing cross-industry data for this measure, we highlight strategies that leading organizations carry out to keep AR headcount as low as possible.
APQC finds that organizations at the 25th percentile need 2.5 FTEs to process AR per $1 billion revenue. Organizations at the 75th percentile need more than twice as many FTEs to do the same amount of work (Figure 1).
When considering your performance for this measure, the cross-industry data and percentiles are merely a starting point. Factors like the composition and volume of the payments your organization receives will play a big role in determining the headcount you will need for your AR teams. For some industries, 2.5 FTEs may be woefully inadequate and would result in unnecessary cycle time delays for the AR process.
For example, it’s helpful to imagine the differences between a billion-dollar healthcare organization (like a hospital) and a billion-dollar construction company. The hospital will have thousands of patient and insurance accounts receivable related to the services its medical staff has rendered, and the payments of those accounts will be just as voluminous. The work to receive, process, and resolve payment discrepancies requires a sufficient number of FTEs to accommodate those volumes.
A billion-dollar construction company, on the other hand, might develop a limited number of large-scale projects during the year, which is paid for by a small number of customers with infrequent yet significant draws. The number of FTEs required to perform the AR process would in all likelihood be less than the number required for a hospital. Factors like these make it important to benchmark your performance against organizations with a similar degree of complexity and those within your industry for the most accurate picture of where you stand.
While it’s important to account for factors like your industry and the typical volume of transactions you process, a lower number of FTEs is generally better for this measure. An unusually high number of FTEs may be a sign that you have opportunities to improve the process and make it more efficient. Below, we discuss the importance of standardized and digitized processes for keeping your FTE headcount as low as reasonably possible.
If your accounting team is spread across multiple offices, are they all using the same definitions and processes? It is common for autonomous accounting groups to develop their own unique ways of carrying out the process, but when it all rolls up to the enterprise level, those rogue accounting processes will create complications that can often be resolved only through manual labor.
Leading organizations with a footprint in more than one region often leverage shared service centers (SSCs) for AR and other high-volume processes. With a dedicated team carrying out the process on behalf of the entire enterprise, organizations can ensure greater consistency, develop staff with expertise in region-specific regulations, and leverage economies of scale to work more efficiently. SSCs do take time to set up, but organizations often find that the benefits of process standardization and efficiency make it a good investment.
APQC has consistently found organizations with fewer FTEs per $1 billion revenue receive a larger percentage of their receipts electronically or automatically. Accepting electronic payments and encouraging your customers to pay using electronic methods can help make your AR process more efficient by removing manual inputs and steps from the process.
Even in 2023, it’s still the case that some organizations and customers prefer to remit payment with a paper check. The good news is that you can still digitize and automate even these payments to a degree since most banking institutions now include remote scanning and deposit among their services.
If your organization is one of the top performers that only needs a couple of employees to process a billion dollars of receipts, pat yourself on the back, but don’t stop there. Look upstream and downstream in your organization’s order-to-cash process and see what other bottlenecks and redundancies can be removed. If you look carefully and continuously, you will find that there are always more efficiencies to be gained.
Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.