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Invoice to Cash

What is Invoice To Cash?

Invoice to cash, also known as I2C, refers to the business accounting process that encompasses, from start to finish, the entire customer payment cycle.

It begins with the initial transaction, which is documented and communicated to the customer via invoice. It ends when payment is received and its cash value is attributed, through cash application, to the appropriate account where the transaction originated.

What Is the I2C Process?

I2C is a compound process that encompasses many component parts, or other processes, that work together.

The process begins with the issuing of an invoice. This is a document provided by a business to its customer that provides all the necessary details of a transaction. By documenting this information, the business has provided the customer with a supporting record of payment to be made.

Once the customer receives an invoice, the business expects payment to follow. If payment is not made at the same time as the transaction, it becomes part of the accounts receivable (AR) process. In these instances, the customer has not yet paid for the goods or services received. Instead, the business has extended credit to the customer and expects to receive payment for the transaction at some point in the future.

The AR process itself is a multi-layered system that an accounting staff structures and implements in order to manage payments owed to the business. Among other things, it involves the issuing of credit and collections of payments.

Credit systems in a business are also complex processes that involve various guidelines and policies. These govern who is eligible to receive credit, how much they may receive, what sort of interest is charged to them, and the guidelines for paying off the bill.

Forms of payment have evolved drastically in the age of technology, and businesses may have many different platforms in place for receiving payment, including but not limited to cash, mobile, online, credit cards, ACH, and money wiring.

Businesses also have systems in place to ensure that payment is received, even if it is late. AR teams use dunning letters to collect on overdue receivables and prevent accounts from going delinquent. A dunning letter is a collection notice sent to a customer explaining that a payment they owe is overdue. They help the business communicate with its customers and prevent delinquent accounts.

If the dunning letter doesn’t get the customer to pay, accounting teams implement other steps to support gathering payment - this part of the process is known as collections. It can take on many different approaches depending on the customer, the business, and its accounts receivable process.

In an ideal world, all customers will pay in full and on time, but this does not happen all the time. Some bills go unpaid. At some point, if the business determines that a debt is not collectible, it will move to the phase of recovery. In this phase, the business will enlist the help of a collections agency to collect the debt.

The invoice-to-cash process does not end when payment is received. Cash application is the process of matching incoming payments to outstanding invoices and assigning them to the proper account in which they were entered. Similarly, invoice reconciliation aides in this process by matching invoices with payments recorded in the general ledger.

Both are essential ways for businesses to track cash flow and capital so that funds can be utilized efficiently, accurately, and quickly. The more efficiently a business can apply payments received, the more effectively it can utilize its incoming revenue.

Best Practices in Invoice to Cash

Several factors can make invoice to cash more effective. For example, a detailed and accurate invoicing process improves the customer experience by providing them with all the information they need to know about payment, when they need to know it. This puts the process of payment on the right path from the start.

Credit policies that are well developed also aide in the I2C process. Careful consideration should be given to expand the customer pool without exposing the business to unnecessary risk. This allows more opportunities for the business to increase revenue without losing payments to unreliable customers.

Similarly, a collections process that is well-timed and efficient will help the business improve the gathering of payments and minimize bad debt.

Finally, an effective and accurate cash application process allows the business to quickly and efficiently put incoming revenue back to work for the business, paying for operating costs and investing in the future.


Why Is I2C Important?

Invoice to cash is important because businesses need to track the money that is owed to them as well as what money they receive. A business that is not effective in collecting payment from customers will not thrive. Revenue provides cash that the business needs to meet its own obligations such as payroll, supplies, or investing in new growth opportunities.

A healthy I2C process ensures that the business is paying attention to details, working closely with its customers, and paving a path for successful collection of payments that contributes to its revenue stream.

What Are the Biggest Challenges Facing I2C?

Many of the potential pitfalls of invoice-to-cash are caused by inaccuracies in the systems that a business has in place. These often happen at the very beginning when the invoice is generated. Bad math, inaccurate data, and lack of important details in the invoice can lead to confusion on the part of the customer, which can cause delays in payment. This can also make it difficult for the business to track, follow up on, and accurately attribute payment when it is received.

Manual entry of information and reliance on paperwork both contribute to the inaccuracies that are detrimental to the I2C process. The tedium of manual data entry and the sloppiness and slow processing time of paper invoices contribute to a higher incidence of errors, and they create security risks that undermine the process.

Lack of standards and complex approval workflows in the process also cause unnecessary delays and contribute to a higher incidence of errors.

How Does Automation Help I2C?

Automation can greatly enhance the I2C process in several ways. Software improves invoicing by eliminating manual entry and capturing info from computer generated data. This reduces processing time and standardizes information.

Automation can also assist with the collection process by auto-generating dunning letters and collections notices.

Software applications streamline approvals by introducing a rules-based protocol, and digital applications greatly enhance the accuracy of cash application and invoice matching.

Cash Application with BlackLine

Schedule a demo with us to find out how BlackLine’s cash application software and can help streamline your business’ invoice to cash process!