Cash Application: The Hidden Waste Within Order-to-Cash

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4-minute read

This article was contributed by Kevin Permenter, Research Director, Financial Applications, IDC

Traditional Cash Application Processes Are Tedious

Cash application or cash posting is a tedious and challenging area for many accounts receivable departments. In fact, in a recent survey, IDC found that cash management (including remittance handling) was the top challenge for AR professionals. That's not surprising considering the process has typically been packed with manual, labor-intensive, error-prone processes.

Historically, businesses would have someone investigate a payment to find out why it was sent and where the cash should be applied. This is a tedious and time-consuming activity which slows down the period close process and takes valuable employee resources away from more important or more strategic work. Some businesses have turned to spreadsheets to help alleviate the pressure, but in many cases, this is only a band-aid to a larger and deeper problem.

In a recent IDC SaaSPath survey, we saw that over 60% of AR respondents reported using at least some spreadsheets to perform cash management tasks like matching payments to open receivables. Of those that use spreadsheets to augment their cash management activities, 20% of them are using only spreadsheets. With the prevalence of spreadsheets for this aspect of AR, organizations face several hurdles, including the following:

  • Predominance of paper checks. Prior to the pandemic, paper checks presented a significant volume of B2B payments. Within the North American market, the paper check represented better that 50% of the total B2B payment volume. Even today, after significant digital payment progress in the US, the ratio was still significant (+40% according to primary research). Paper checks open the door for inefficiency and fraud, both of which are cash flow management killers.

  • Inaccurate outdated data capture. Optical character recognition (OCR) has been around in some form for decades, but there are still challenges with the technology that lead to inaccuracies including illegible characters, missing lines, or varying formats.

  • Remittance information is often delivered separately. Remittances will often have multiple pages or come in several file types which makes manually handling remittances a tedious process and one that is prone to mistakes. The remittances may also arrive decoupled from bank statement data or other relevant customer files.

Modern Intelligent Cash Management Solution

All the above challenges of cash application cannot be fully resolved with half-measures like spreadsheets and pivot tables. They can only be resolved with deployment of a modern intelligent cash management solution. Given the rapidly increasing pace of business, and the heightened profile of cash management among CFOs and controllers, digital transformation of the cash management process will continue to grow rapidly in the coming years, fueled by the following benefits:

  • Reduced manual effort. Introducing automation into the cash application process can dramatically reduce the manual effort in cash posting.

  • Increased speed. A highly manual cash management process slows down the business and keeps critical information on customer payment trends and details from flowing to those in position to make decisions.

  • Improved accuracy. As described above, there are many places within the cash management/cash posting process where inaccuracy can become a bottleneck to overall cash flow management efficiency. A modern solution leverages AI/ML and advanced analytics to minimize the risks of inaccuracy during the cash management process.

Now more than ever, cash flow is the lifeblood of a business and those who manage it represent the frontline workers of the corporate world. As many as 4 out of 5 businesses that go out of business can point to cash flow (running out of money) as the main reason. This is especially true in times of uncertainty. Cash application is an essential aspect of managing cash in the modern business. As such, customers looking for a faster more efficient cash application process must consider adding a modern tool with embedded intelligence to help with cash application.

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