If you happen to work in a treasury or cash applications function, you know that trying to apply a payment without remittance advice can often be extremely frustrating.
Cash applications should be a straightforward process, posting payments with minimal intervention. However, for many organizations, a payment received without remittance advice, i.e., decoupled remittance, causes problems and delays with payment posting. Simply speaking, decoupled payment remittances are a pain, and the main reason we spend most of our time within credit-to-cash (C2C) searching for remittance instructions in emails, systems, or bank statements, or developing quick fixes with business rules and automation to get around the need for remittance advice.
The primary function of a cash applications team is to post payments that didn’t get through the auto-match process. Many organizations require manual payments to be applied within a set period. If the team is unable to figure out how to post the new payments or can’t find remittance advice, the process may dictate posting the payment on the account. And so begins the additional challenge of managing and quickly resolving cash on account.
To quickly and effectively manage new and on account cash, the right accountability and team design is critical.
The challenge of cash on account
There are different views on who should work cash on account. Many organizations prefer the collections teams to resolve it as they are already speaking with the customer. Traditionally, the collector is the only person outside of the sales team that should talk to the customer about balances on the account. However, there are more effective approaches to enhancing the customer experience, and resolving cash posting issues faster. Organizations that achieve the best results, fastest posting cycle time, and lowest amount of open cash, treat both new (unapplied or unidentified) and aged cash (on account) the same way, and have their cash applications team own posting through to closure.
By their very nature, there is a good chance that your collections team won’t prioritize cash on account effectively, as they need to prioritize debit balances in the collections process. Cash on account is rework or exceptions management, and disrupts the flow of work for the collections team. To resolve cash on account effectively, collectors should partner with a cash applications team that is measured on all of their cash performance, including cash on account resolution and aging. Anything more than 2% ratio of cash and credit balances to total receivable is too high, and cash on account older than 90 days should raise a red flag if there is no clear disposition associated to the payment (ex, pre-payment, pending refund, etc.). The faster you address an application issue closer to the time of payment, the easier it is to manage.
Industrialize your cash apps
Here are my top four reasons why your cash applications team should own the resolution of all cash applications items:
- Single ownership – once a payment is posted on account and the balance becomes a hot potato, everyone wants it resolved, but nobody knows who owns it. The message for the cash applications team should be simple: “You posted it, you own it” – and once ownership is assigned, follow it through to closure
- Resolution expertise – when you wake up from a general anaesthetic, wouldn’t you want to talk to the doctor who treated you? The same logic follows in payments. Why not let your customer speak to the person that manages their payments? While it’s important to keep complex collections’ interactions closer to your customer customers are typically fine dealing with an English-speaking specialist from anywhere in the world if they can fix the issue quickly
- Direct resolution – timely resolution of unapplied cash is critical and impacts working capital and aging. Introducing multiple channels and handoffs to obtaining remittance and then routing it back to cash applications only adds steps and elongates the process. Let your cash applications analyst call or send an email to your customer to obtain instructions, get the information, and apply the payment during or right after the conversation. Be prepared to react quickly
- Increased customer confidence – coming back to the patient-doctor example, if you have direct access to the doctor who performed your surgery, it’s likely to make you more comfortable about the process. Similarly, instilling confidence in your customer that their cash is being handled by a professional, enables you to build trust.
More often than not, industrializing the process within the cash applications team delivers a better outcome than working through multiple channels and owners. Creating rigor around cash apps will get you best-in-class results.
Empower your cash team to manage the end-to-end payment process, future-proof your cash posting process and have your cash applications team follow every payment through to closure.
Read other blogs in this series :
- Improve your order-to-cash process in a few simple steps
- Three steps to improve your collections function
- Successful accounts receivable collections in ten easy steps
- Four key components to writing effective credit-to-cash emails
- Pipefy – transform your collections emails and processes
- Optimize your cash applications in five simple steps
- Four reasons why your cash applications team should own the resolution of all open payments
- Three simple steps to successful order-to-cash automation
To learn more about how Capgemini’s next-generation O2C solution is designed around a “golden path” principle that can help you optimize your O2C processes, contact firstname.lastname@example.org or email@example.com
Learn more about how Capgemini’s Finance Powered by Intelligent Automation offering helps you navigate the myriad of products, tools and services, enabling your business to benefit from an intelligent solution that combines automation, digital platforms, know-how, and insight.
This blog was co-written by Aleksandra Giera-Doench – a member of Caroline Schneider’s team. Aleksandra is credit-to-cash (C2C) subject matter expert and cash applications GPO, with 10 years of experience in C2C operations and technologies, supporting transformation initiatives across Capgemini engagement.
Caroline Schneider has been delivering and designing O2C solutions for clients for over 18 years. She is passionate about delivering solutions to clients to maximize their working capital through technology, automation, and industrialized process design.