In an economic downturn, the pressure on accounts receivable rises. Businesses need solid cash accounts behind them so that they are financially able to ride out financial challenges. Moreover, with interest rates rising, firms will want to draw on their own cash reserves wherever possible, so that they’re not forced to borrow funds at an inflated cost.
With the launch of our eagerly awaited Advanced Cash Application technology, we sat down with Sarah-Jayne Martin. The goal? To understand the importance of cash application within the credit-to-cash process, and what Quadient AR’s latest innovation offers finance teams in these turbulent times.
Sarah-Jayne, could you please introduce yourself?
I'm Quadient’s Global Director of AR Practice. My role involves demonstrating our technology to prospects to help them understand its value and also working closely with our customers to optimise their finance processes.
Prior to Quadient, I worked as the Director of Order to Cash for several global firms. The experience I gained from this has proven invaluable in my current role as I truly understand the challenges finance teams face, having faced them myself!
What are the primary challenges organisations encounter in the cash application process?
A recurring set of challenges impact the cash application process. First, we have manual and repetitive tasks, as each payment and remittance must be matched with the correct invoice and applied to the organisation’s ERP. This slows down the allocation of cash, rendering funds unusable until they're applied. In times of tightening liquidity like today, that’s a real issue.
Of course, when work is managed manually, errors follow. This not only disrupts cash flow; it can also lead to customer challenges. If you have credit limits in place for customers, unapplied cash means that their line of credit won’t reflect the fact that they’ve submitted the payment. We all know that manually matching a high volume of payments is difficult to keep up with, but unfortunately, whether it’s the AR team’s fault or not, customers aren’t very forgiving when it comes to their business!
So, the traditional cash application burdens employees and has the potential to impact customer relationships. It also drives up days sales outstanding (DSO), meaning there’s less capital to invest in other areas of the organization.
Ouch! That's a tough set of challenges. How can AR teams overcome them?
AR teams must use automation to capture remittances. Even with a small number of invoices, expecting employees to manage this manually is a recipe for error. And it’s certainly not scalable once the volume of invoices increases. The process is bound to break and then organisations face those challenges I’ve mentioned.
With automation, teams can significantly reduce their number of outstanding invoices and ensure that cash keeps flowing. This lowers their reliance on lockboxes — meaning less fees — while also saving them a lot of time.
On top of that, it gives them better visibility into cash flow, which benefits the wider team, and the organization as a whole. Leadership can assess the true state of outstanding receivables and make informed decisions on how to approach collections and work with customers.
What's the big deal about Quadient AR Advanced Cash Application?
The first advantage the technology offers is speed. The tool extracts remittance data and matches the customer and invoice data in real-time. This information is then used to reconcile the payments with the open items and apply cash back to the organisation’s ERP. The whole process can be managed without manual intervention, which is a massive timesaver.
This even applies when payment has been received but the customer isn’t immediately identifiable. Machine learning will analyse data to provide a suggested customer, which collectors can then review to ensure accurate cash matching. The process becomes intelligent, ensuring that technology handles the manual work, while employees are only involved where absolutely necessary.
Of course, customers also benefit. Those who have submitted a promise-to-pay can be considered to have paid. In this case, they’re automatically removed from payment reminder workflows to avoid overcommunication. This ensures relationships aren’t disrupted.
What excites you most about the Cash Application technology?
The machine learning element is awesome. The fact that the technology can automatically allocate cash back to the ERP — whether remittance data is included or not — is genius. I would have loved to use the solution when I was managing finance teams.
Aside from the technology benefits, I’m most excited about the fact that our platform now offers a full AR automation suite. This will enable finance teams to intelligently manage every step of the process, from credit management through to cash application. It’s the final piece of the puzzle for our product and it’s going to drive significant business outcomes for the teams that use it.
Thanks to Sarah-Jayne for her time discussing Advanced Cash Application, our new product feature. If you want to learn more about the technology, get in touch with our team and watch the product video below!
