With economic uncertainty becoming a way of life, most businesses struggle to find new sources of revenue growth. As a result, they are looking harder than ever for ways to improve profitability through more efficient use of working capital.
Accounts receivable remains the lifeblood of most companies and, therefore, it is one of the first places they should look to refine their processes, says William J. Booth, executive vice president, Treasury Management, PNC. The opportunity for improvement in working capital management is significant.
Smart Business spoke with Booth about the latest techniques and technologies for improving working capital performance.
What’s the first step companies should take to make working capital more efficient?
Companies should look first at the way that cash comes in the door. For most, that ‘cash’ looks a lot different than it did a few years ago. Electronic payments are becoming the norm. Even credit card payments can be a meaningful component of your mix thanks to commercial p-card applications. New technologies, including ACH, EDI and wire transfers, allow companies to better integrate these payment streams, allowing the business to benefit from controls visibility and technology not only with traditional paper receipts through a traditional lockbox but also electronic payments through a virtual lockbox.
What about payments outside the lockbox?
Companies occasionally receive payments at a facility other than a lockbox. Using remote deposit technology, you can integrate these payments and the remittance detail into the lockbox process. The information is then incorporated into the overall consolidated stream of data coming back to your system.
Are there ways to make foreign-denominated payments less of a nuisance?
Ask if your bank is capable of processing foreign-denominated payments through its lockbox. Some banks can provide a spot rate foreign exchange for certain currencies, then seamlessly integrate the payment, saving up to two weeks of collection time.
How important is it that information be current and correct?
Past due accounts and unauthorized deductions can significantly reduce cash flow, so up-to-the-minute receivables information is a critical piece of the process. With current information at your fingertips, you can significantly improve daily sales outstanding, deduction management and collections.
Even if you use a lockbox solution to collect payments, there are more advanced features to take receivables collection to the next level.
What are some advanced technologies?
Intelligent character recognition software, virtual batching and accounts receivable matching are some of the most useful advanced tools for improving A/R performance.
How does intelligent character recognition work?
Data that was manually keyed in is now automated. Information contained in columns and rows from statement and invoice documents is captured and uploaded immediately, reducing processing time and improving the quality of receivables information.
What is virtual batching?
Virtual batching is a way to customize data grouping so that you can access the information that’s important to your business. Receivables can be grouped by department, transaction size, or client — or even matched and unmatched payments. Exceptions, such as out-of-balance situations and incomplete checks, can be isolated and dealt with right away, allowing you to get through your exception processing more quickly. Virtual batching can also be used to segregate different categories of customers, allowing data to be pushed to the right group of accounts receivable people, which improves workflow.
How can companies use A/R matching?
Accounts receivable matching allows your bank to compare, validate and match payment data to an external source such as an open invoice file. If items don’t match, additional data elements can be added. Say a client submits an invoice with a partial invoice number. Accounts receivable matching takes what was provided and attempts to match the information until a valid number is found. The result is that you’re able to post information more quickly and reach customers faster when legitimate exceptions are found.
What is the role of online correction tools?
Sometimes, the lack of any invoice or posting information cannot be effectively resolved through accounts receivable matching. An online correction feature allows your bank to identify the exception item and post it in a website for your immediate review. You can then research and manually input the missing information so the item will post automatically when your receivables file is received from the bank. These solutions can be structured to work together or tiered to process receivables in the best way for your organization.
When considering a provider for your receivables management, make sure that your bank can provide comprehensive capabilities. You can then identify the solutions that will address all aspects of your receivables needs and maximize your cash flow.
This article was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell securities or to engage in any specific transactions, and does not purport to be comprehensive. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other adviser regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors.
©2010 The PNC Financial Services Group, Inc. All rights reserved.
William Booth is executive vice president, Treasury Management, for PNC. Reach him at [email protected].
