Applying for customer payments in a timely and accurate manner is a key part of the order-to-cash process. Keyed manually into an A/R software module, cash posting can take considerable time. Furthermore, due to a lack of information, some payments will be posted on the account pending further research (or otherwise tagged to a suspense account or flagged for follow-up). Automated remittance processing systems will greatly reduce the time and labor required to post customer payments and increase the number of postings that are cleared on the first pass.

Critical Issues

First up, let's consider what you'll need to know to do a thorough upgrade of your remittance processing. Here's a checklist of critical issues:

While EDI has been around for quite some time now without fully delivering on its promise, due to the complexities inherent in establishing each individual trading relationship, electronic payments are nonetheless growing rapidly. The use of ACH for commercial transactions is growing while the use of paper checks is declining (See "Credit Today Benchmarking Survey: The Latest Data on Cash Application & Remittance Processing"). Moreover, with the enactment of Check 21 legislation, allowing images of paper checks to be used as a substitute check in the clearing process, this trend will undoubtedly accelerate.

Even so, there remain ample opportunities to implement auto-cash solutions, which are usually associated with bank lockbox operations processing paper checks, to address the inefficiencies of manual remittance processing. Until trading partners are able to move to an entirely electronic payment and remittance processing system, the software used to process transactions must be able to address the multitude of exceptions that arise in conjunction with B2B transactions.

This again is the lesson learned with EDI. It is possible to build a system that works with a customer and a vendor, but chances are the vendor can't fully migrate that system to another customer because of the nuances of their trading relationship and their own internal systems. The beauty of auto-cash is that it teaches us how to handle high payment volumes from lots of customers. This knowledge will be extremely useful as companies add more electronic trading partners. Emerging advances in technology such as the use of XML data tags are providing the flexible structure necessary to easily build data bridges between trading partners. As remittance processing technologies improve, so will your ability to process transactions quickly.

Insights

While many ERP vendors claim to offer auto-cash capabilities, most contain only rudimentary remittance-to-invoice matching capabilities. Auto-cash solutions that provide advanced algorithms and other matching tools are much more cost-effective. The typical ERP auto-cash facility will typically generate match rates in the 40 to 60 percent range. An advanced solution should push the match rate up above 80 percent and in some cases will approach 100 percent. The bulk of the labor-saving benefits from auto-cash come from this extra 30 to 40 percent gain in match rates, because it is these difficult-to-handle remittances that take the most time.

As a rule of thumb, you should consider implementing an advanced auto-cash solution if you have at least two or three staff members whose jobs are primarily focused on remittance processing. The ROI for an Auto-cash solution is very much a straightforward labor-saving play.

The same is true for EIPP; it can significantly reduce the workload for your collection and dispute management staff. However, the key to realizing a payoff from EIPP requires that you enroll enough customers to have a significant impact. That said, EIPP is more readily accepted by small businesses, which are more like consumers than big businesses in their payment preferences. Large companies will usually balk at the payment component of EIPP because they do not have the time to deal with hundreds of different vendors through different payment portals.

There are two factors driving change in the remittance processing arena:

1. The proliferation of new payment technologies, and
2. The introduction of Intelligent character recognition (ICR) tools

One consequence of these factors is a reduced need for lockboxes and for the data collection services that lockboxes offer. By being able to track multiple payment types and by being able to capture remittance advice in any format and convert it to an electronic record, there is no need for lockbox processors to perform data entry tasks. Instead, the images of the checks and remittance details can be automatically converted to an electronic remittance file. In some circumstances, the lockbox can be bypassed with the integration of remote deposit capture (RDC) technologies into the remittance process.

The benefit of these new capabilities is greater processing efficiencies and lower transaction costs. Overall, today's state-of-the-art remittance processing automation tools deliver an impressive, highly comprehensive, solution set.

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Editor www.highako.com Highako.com is a video-first microlearning platform trusted by over 10,000+ Credit and Collections professionals. Drive skill growth with role-specific, expert video lessons. Measure practical expertise through hands-on assessments. Connect and collaborate with the largest credit community and get access to ready-to-use templates.

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