Most of my colleagues don’t give cash applications much thought.
It’s easy, right? You bill a customer, and they pay. Then you read the application details and apply the receipts. What could be simpler? But if it’s that easy, why do so many organizations struggle with cash receipt management and auto-match rate?
The answer is simple: Everyone handles receivables and payables differently. Overall, the process is similar, but the challenge is about the details. Your customers use a variety of applications to pay their invoices. There are manual and automated processes that need to be completed to get that payment out the door and over to your bank.
To standardize how your customers pay means trying to drive change within your customers’ accounts payable teams. Why would your customer go through the hassle of changing their processes and systems to help with your automated cash application? Why would they switch to electronic data interchange (EDI) if emailing the remittance to the credit analyst has worked for years? Why would they pay Automated Clearing House remittance (ACH) fees? They’ve done their part, and you have the payment – so it’s up to you to figure out how to post it.
The challenge of posting payments
Even with an experienced team, posting your payments quickly and accurately becomes more challenging if you don’t have the right cash applications solution in place. A best practice is to implement a cash applications platform that adapts to all the different customer payment habits, uses data from emails and other systems to post, and learns posting rules based on how your customers pay or how your team posts cash.
Deploying a cash posting system that supports machine learning, image recognition, and the ability to convert email and portal data into remittance advice takes the complexity out of the cash applications process. Most organizations have a patchwork of systems, macros, robots, and in the middle of it all, a cash apps team – yet most still fail to achieve a 90% or greater auto-match rate.
Implementing the right cash applications solution
Don’t worry! Help is at hand. Here are five steps you can leverage to help improve your organization’s cash applications process:
- Review your existing technology landscape. Assess the systems you have in place and whether you are using all your core functionality to its fullest potential. We typically see organizations achieve around 80% auto-match with their ERPs. To get to 90% or greater, optimize your ERP, add smart automation, and implement an auto-cash tool.
- Take advantage of your customer data. Ask the bank to share Corporate Trade Exchange (CTX) error files, and apply automation to upload the data into your ERP system as another remittance source. Most CTX errors can be resolved through formatting changes and can yield a 3%–5% improvement on your cash apps hit-rate results. If your customer is providing remittances via a portal, pull in remittance data ahead of time by automating the integration between the portals and your ERP. Ensure that remittances are leveraged by the auto-cash engine, which can add around 3%–5% into your overall hit rate. Do the same with your mailboxes by applying smart automation to integrate remittances sent to the mailboxes with your ERP repository. This can add 5%–8% to your overall hit-rate results.
- Refresh your policies and allow for automatic application of payments. Most customers pay either the oldest balances or the most current ones. If you know how they pay, why not allow these to be automatically applied and skip manual intervention?
- Automate as many repetitive tasks as possible. If your team is writing off small balances, create an automated write-off program. Better still, add it as a part of your cash application matching engine.
- Look at what the data tells you. Apply analytics and get to the root cause of the issue, then fix it for good – update your policy, amend your auto-cash program, and tweak your robots to automatically apply the payment the following month. This will truly help you keep the hit rate at the optimum level.
With the right process and cash applications solution, customer payment behavior no longer needs to be a hurdle that results in manual cash-applications issues.
Capgemini is an SAP global partner.
For more on digital cash management strategies, read “Working Capital Management: Exploring The What, Why, And How.”