November 15, 2021

How to Drive Value Creation with Automated Cash Application

5-minute read

Companies are generally concerned with developing products, selling them to customers, and delivering a good service. However, from a value creation perspective, it doesn’t stop there. A dollar on the top-line is not a dollar on the bottom-line, and even if you’ve recorded the profit, it doesn’t mean it’s ultimately collected.

No, running a company is about more than “simply” delivering on the mission and vision while realizing the strategy. Ultimately, cash must be collected to create a return to shareholders. It’s the old saying, “cash is king.”

At every step of the way something can go wrong. You can sell products at a loss. You can fail to collect the cash because a customer goes bankrupt. You can even destroy value from running inefficient processes, such as having to deploy too much headcount so that profit is eroded. However, finance can play a positive role every step of the way, especially when it comes to those inefficient processes, not least the financial processes.

If we look at the collections process, this is one area where there are significant optimization opportunities through automation. From a customer perspective, you would think that they would be interested in delaying payment for as long as possible. In reality, they are interested in as smooth of a process as possible.

The same can be said for your internal processes such as cash application. This should happen seamlessly, but too often companies have too many mismatches, which means that cash simply isn’t available at the rate the company wants. Companies can do better. Let’s look at two examples where substantial improvements were made.

A Streamlined Cash Application Process

You might wonder how many benefits can be realized through automating a simple process such as cash application. The answer may amaze you! Here are two cases from Veolia and Brambles.

Veolia

  • Situation: Veolia had faced extremely high levels of unapplied cash and the payments were touched multiple times to find a match.
  • Challenge: At month end the situation was critical. In a span of 2-3 days, the vast amount of payments were made, meaning that credit controllers had to spend a significant amount of time on the cash application process. Naturally, this meant time away from higher value adding tasks such as analyzing customer behavior and helping sales teams make better deals.
  • Resolution: Automate the cash application process so bank reconciliations can be done daily and in minutes, improving data quality and audit trail.
  • Impact: The results were tangible! A 70% increase in efficiency, 75% cost savings on the matching process, improved cash collection process and net working capital position, and most importantly, an improved customer experience.

Brambles

  • Situation: Brambles had outsourced its cash application process which proved to be costly and difficult to manage.
  • Challenge: Duties were split between teams and each geography had unique processes, forcing the outsourced team to deploy a lot more resources than expected to deal with manual processes.
  • Resolution: Standardizing the process while automating yet keeping local requirements in mind.
  • Impact: The impact varied across regions depending on existing automation measures. In low automation regions such as Latin America, Brambles moved from a fully manual process to a 75% auto-match rate. Overall, the company moved from 38% to 80%+ on auto matching.

The return on investment on an automation solution is significant and the payback period is very low. For Veolia it was as low as four months! This essentially leaves no excuse for not getting started with automation.

From Cost Center to Cash Driver

Very few finance and accounting professionals find it satisfying to work with largely manual transactional processes where it is difficult to see what impact you are having in the company. We all want to be a part of the value creation, yet if we cannot free up time to do it, we are going nowhere.

Automating processes such as cash application should be seen as a quick win rather than a stereotypically lengthy IT/tool implementation. However, this is still how most people perceive it. Hence, sharing the cases of Veolia and Brambles can hopefully start to move us in the right direction.

What are your collections, and particularly your cash application processes, looking like? Do you have auto matching rates like Brambles or are you deploying unnecessary numbers of manual resources to run the process? Now is as good a time as any to start considering how to improve your process, and automation should play a key role. Are you ready to get started?

Get your copy of this white paper to discover how to drive greater value with AR automation.

Anders Liu-Lindberg

Intelligent Automation