June 17, 2021

Your Cash Is Held Hostage: Here’s How to Free It

In most companies, thousands of transactions are happening daily. Cash is flying around left, right, and center, and never stays idle. However, just because a transaction happens doesn’t mean you get paid. First, an invoice should be issued, then payment should be made, and lastly, the payment and invoice should be matched. 

For this very reason, trillions of dollars are constantly held hostage on companies’ balance sheets. Often, your cash will only be held up for a short time. But depending on the nature of the transaction, it could take days and sometimes weeks. 

The second challenge is all the effort it takes to match cash and transactions. Your accounts receivables department might be spending a significant part of their work hours just on cash application. Lastly, it is not uncommon for the matching to be done manually, increasing the risk of errors and the time it takes to complete. 

Cash may not be expensive to get these days and in fact, in some places, you even need to pay to have it on hand. However, you could still get into trouble if you don’t have cash on hand because it is tied up in things like working capital. Therefore, it makes a lot of sense to review this process and see what improvements can be made.

Are you ready to free your cash? Keep reading to learn how.

Automation Is the Answer 

If your current cash application process is manual, it’s simply not sustainable. It takes too long, it’s error-prone, it’s expensive, and it hurts the morale of everyone involved in the process. As with a lot of other transactional tasks in the finance function, the solution is simple: automation.  

Payment data can be received in many forms such as bank data, ERP entries, and an electronic data interchange. The trick is to have one solution that can process the data from all sources in a uniform way.

Most of the data received should be directly readable by a robot to ensure that auto-application can occur. Even if it cannot be auto-applied, you can use machine learning to ensure your occasional manual interventions can be automated in the future. 

In essence, you can make cash application a non-issue and redeploy your teams to higher value-added work such as collections, credit decisions, and risk management. In addition, an automated solution can give you more insight into customer behavior and allow you to make customer decisions based on real-time data.

Here is a quick overview of all the benefits it can deliver for your F&A organization: 

  • Optimize working capital by freeing your cash
  • Release your staff for higher value-added work
  • Put stronger controls in place around the process
  • Improve your customer experience, with fewer time-consuming requests 

In theory, this all makes sense—but what are some of the real results created for companies?

Here is what happened at Veolia when they automated their cash application process. Before automation, they were struggling with high levels of unapplied cash, significant manual efforts, and uneven workloads with most payment applications happening at month-end.

Through automation, they were able to achieve:

  • 70% efficiency gain
  • 75% savings on all costs associated with matching
  • Reduction of unapplied cash balances down to 0.002% of the overall ledger balance
  • 99% application rate of invoices on the day of receipt 

Freedom for Your Cash 

Name any accounting process and I’m sure you can imagine a scenario where automation could remove the overall need for human intervention. We have proven this with intercompany accounting and now cash application, as well. There is a better way.

The benefits of automated cash application are astonishing, with up to a 99% reduction in unapplied cash, 85% reduction in manual activity, 95% of cash applied upon receipt, and a staggering 5–10-day reduction in DSO. I challenge you to name any other accounts receivables initiative that can deliver that!

Your company needs cash for many different purposes, to ensure it can take advantage of business opportunities as they arise, and avoid paying for any unnecessary funding. However, if your cash is held hostage on the balance sheet, you will be responsible for lost business and a more expensive cost of capital.

Start automating your cash application today to make the move to modern accounts receivable automation and free your cash.

Anders Liu-Lindberg

Intelligent Automation