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Simplifying the Cash Application Process

Making improvements in the cash application process using automation can significantly reduce labor costs, increase cash flow, and improve external customer satisfaction.  Many Shared Service organizations are having success in improving Autocash matching rates and eliminating inefficiencies in the cash application process.

A recent PeercastTM in the Accounts Receivable (O2C) research area featured a global company discussing their four-year journey to improve the cash application process.  The project started in 2012, with the identification of a variety of improvement opportunities.  It was a long list, including instances where electronic bank statement information from Europe was entered manually; with EFT and wire transfer payments being manually recorded in North America.  The overall improvement opportunity focused on automation, with six solution providers evaluated and two selected to complete detailed statements of work.  External solution providers were compared with the option to create a custom IT solution in-house. At that time using a custom in-house IT solution was a clear winner because of the benefits of increased flexibility, lower cost, and the need to meet diverse requirements for both Europe and North America. 

Fast-forward to 2016 and it was time to replace out-of-date software.  HighRadius, a third party SAS solution that integrated with SAP, was selected after an evaluation of alternatives that started in early 2015.  This cloud-based solution helped the feature company increase automation by providing an enhanced solution for handling email and web remittances compared to their existing OCR approach, and supporting the bundling of EDI 820 remittances.  The solution also helped the company further optimize the cash application process, as well as reduce its IT support requirements.

A recent iPollingTM question from another Peeriosity member who was considering a third-party solution asked for feedback regarding how companies were approaching the auto-application of cash receipts.  For 36% of responding companies, in-house standard ERP functionality was used, with an additional 23% using custom internally developed software.  Another 23% indicated that the process was performed in-house using purchased non-ERP software, with the remaining 19% of the companies indicating that they use a third party solution.

Here are the details:

The second poll question asked about the company approach to the auto-application of customer payments that was either recently selected or was being considered, with 80% of responding companies indicating that they had not made recent changes in how auto cash is handled and they have no plans to do so.  The remaining 20% have either moved cash application to a bank or another type of third party or they have plans to do so within the next three years.

Here are some of the comments added to iPollingTM responses:

  • Right now, we are in the process of converting old ERP systems to SAP. We receive bank files (BAI2) and these are uploaded into our current systems. No changes in this process are scheduled in the immediate future.
  • We take the electronic bank files with details and put that through an internal program to identify the cash and close the open items. We do not expect to change the application of the cash but are instead focused on ensuring the data provided by the bank is as complete as possible. We are investigating a proposed service by our bank to process remittance details for electronic payments that are sent via email where the customer is unable to send EDI820 or CTX remittance data. This will feed into our existing bank file and go through our existing application process.
  • We use a banking partner to perform the auto application of cash receipts. We receive a BAI2 lockbox file with payment details and invoice records from the remittance advice. The lockbox file includes checks and ACHs, along with information from remittance advices. This file is then processed in our SAP system auto applying the payments based on the Business Rules documented and established with the bank.

The PeercastTM discussion and related iPollingTM question are excellent examples of the need to continue to evaluate opportunities as technology and process design alternatives emerge as the “next leading practice”.  What was clearly a good idea three or four years ago may no longer stand up to a close comparison with new alternatives.

What is your company’s approach to the auto application of cash receipts?  Is your solution in-house and custom, in-house and third party, or have you moved the cash application process to a third party?

Who are your peers and how are you collaborating with them?

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“PeercastsTM” are private, professionally facilitated webcasts that feature leading member company experiences on specific topics as a catalyst for broader discussion.  Access is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from attending or accessing discussion content.  Members can see who is registered to attend in advance, with discussion recordings, supporting polls, and presentation materials online and available whenever convenient for the member.  Using Peeriosity’s integrated email system, Peer MailTM, attendees can easily communicate at any time with other attending peers by selecting them from the list of registered attendees. 

 “iPollingTM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility to all respondents and their comments. Using Peeriosity’s integrated email system, Peer MailTM, members can easily communicate at any time with others who participated in iPolling.

Peeriosity members are invited to log into www.peeriosity.com to join the discussion and connect with Peers.   Membership is for practitioners only, with no consultants or vendors permitted.  To learn more about Peeriosity, click here.

 



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