Are Your Invoicing Processes Impacting Growth? Time to Go Digital

Why do Mexican small and medium enterprises (SMEs) struggle to get past the eight-year mark? Is it possible to reverse such a trend while battling inflation and recession? These are some of the questions concerning entrepreneurs and government agencies alike — after all, Mexico’s National Institute of Statistics and Geography (INEGI) counts 4.9 million SMEs in the country. How can SMEs survive and even thrive in the current challenging scenario?

According to a report by KPMG, 47% of Mexican SMEs are struggling due to a lack of liquidity and funding. Data published by ASEM shows that 35% of SMEs surveyed cited a lack of liquidity as the main reason for business failure. This is a significant concern among companies, as liquidity allows them to navigate the unforeseen setbacks that are becoming more common during these times of crisis.

Meanwhile, at least 25% claimed their failure was caused by a lack of access to funding from banks and investment funds. This scenario poses a complex and challenging 2023 for SMEs. Liquidity is now the dangling carrot, as enterprises look to continue growing in a highly competitive landscape.

One of the main obstacles companies are facing is the issues caused by ineffective accounts receivables (AR) management. Deficient AR processes can create significant backlogs in payment chains. To keep production running and stay afloat, many SMEs resort to factoring companies and taking on debt. Further down the line, this can not only jeopardize their growth opportunities, but also put them at risk of bankruptcy.

This shows that many organizations are still following traditional invoicing and collection models. These models approach clients using pretty outdated techniques, such as old-fashioned collection calls, where a collector makes frequent and insistent calls aimed at wearing down debtors into paying. These calls tend to be very invasive, spark conflicts with clients, and, more often than not, have the complete opposite effect, as they create further delays in the collection and payment cycle.

Another big threat is the pervasive use of manual processes in AR management. Manual invoicing and collection risk exposing companies to human error, can delay liquidity, and can damage customer relations. But also, these are time-consuming tasks that take up valuable time that team members could use in more added-value activities, such as planning and strategic management.

Companies without digitized invoicing and collection processes also lose visibility of incoming and outgoing payments — a key indicator of an organization’s financial health. After all, knowing the company’s financial status is the only way in which an entrepreneur can plan, make strategic decisions, and, ultimately, achieve sustained and sustainable business growth.

Fortunately for SMEs, technological innovation has come a long way and is now available to all companies, no matter their size. Some years ago, SMEs could not even dream of purchasing AR technology. Now the market has a range of cost-effective solutions to optimize and automate key processes to secure liquidity.

And the outlook is bright. According to the fifth edition of Barómetro GS1, a report on Mexico’s retail industry, 3 out of 4 Mexican companies expect to grow during 2023, despite the adverse economic climate. Respondents associated their optimistic expectations with product development and innovation (19%), hard work (13%), and online sales (9%).

Nowadays, technology can easily enhance product development and innovation. Purpose-built digital platforms can be seamlessly integrated with ERP and accounting software to provide full visibility of a company’s AR landscape. These tools can create visual reports with critical business insights to support decision-making. As a result, business executives can easily predict and monitor incoming and outgoing cash flows to maintain sustainable operations.

AR software can also optimize collection processes. With this technology, SMEs can contact key stakeholders promptly and identify who opens the company’s emails and even who clicks on the links provided. But also, these tools have the potential to turn a historically tedious and unpleasant task into a more effective and friendly process that is more mindful of client relationships.

All in all, although still in the early stages, SMEs seem to be on a steady journey toward digitization. Technology is undoubtedly a key ally for improving liquidity. SMEs that fail to leverage technology risk losing competitiveness or, even worse, being left behind.