You don’t want to notify your customer that he has not paid you when you have already cashed his check. You don’t want to inform your customer that he has paid you when he has actually not paid. You don’t want to tell your company that Accounts Receivable balance is X when it is indeed Y, because of misapplied customer payments. You do not want to create irreconcilable differences between your corporate cash position in the books and the corresponding bank statements. Finally, you do not want to delay processing customer payments and starve your company of much-needed cashflows. The list goes on.
Simply put, this is the cash application problem, otherwise described as how customer payments get applied in the accounting books. This problem dates back to the Industrial Revolution era of the 19th century. Over the years, there has been a flurry of business process and technology solutions, but even so, the corporate cash applications problem has continued to grow as transaction volumes and payment methods grew. Unfortunately, most of the solutions have been designed to address the symptoms and lack the capability to address the root causes and eradicate the cash application problem altogether.
The Need for Efficient Cash Application
Every company relies on a steady flow of cash to fund its operations. Companies seek to accelerate the Invoice to Cash (IC) cycle through efficient cash application processes. An efficient cash application solution is one that achieves shorter IC cycles at optimal cost and thus produces lower DSO and improves the overall working capital of a company. On the other hand, an inefficient cash application solution often produces a slower IC cycle with very negative impacts on DSO and working capital.
Root Cause of The Cash Application Problem
At the core of the cash application problem is accounting for customer payments and all billing adjustments at the invoice level. This problem becomes magnified when a customer pays for a number of invoices in a single check. This situation requires that the amount paid be reconciled with each of the related invoices with considerations for adjustments such as discounts, credit memos, etc. The reconciliation process takes time and is prone to errors if done manually or through another quasi-manual approach.
The Bectran E-Lockbox
The Bectran E-Lockbox provides a digital medium with the following capabilities:
1) Captures customer payments digitally through different payment methods
2) Automatically reconciles and applies customer payments to the related invoices
3) Automatically deposits the customer payments into the client’s bank account
4) Prepares a full statement of invoice-reconciled payments and transmits the same statement to the client’s ERP.
Overall, the E-Lockbox process ensures that money recorded in the books is what is reported in the client’s bank statement and fully reconciles the customers’ payment obligations.
Many of Bectran's clients have applied a phased approach as they enroll their existing customers on the Bectran E-Lockbox platform while mandating it for all new customers. The more of their customers they enroll on the E-Lockbox platform, the more of their cash application problems they eliminate. The common reasoning amongst our customers is that they are better off eliminating the cash application problem for a portion of their customer base that are enrolled on the E-Lockbox platform than the alternative, which is not eliminating the cash application problem for any of their customers.
About Bectran [www.bectran.com]
Bectran, the industry leading SaaS platform, has grown rapidly over the years to become the companion toolkit for the credit department just as CRM is for the sales department. From simple to complex organizations and SMEs to Fortune 500 companies, Bectran has helped companies cut down the time to process and approve credit by over 90% while significantly lowering the risk of credit defaults and the cost of collections.
A growing number of companies are depending on Bectran to manage their Accounts Receivable and Collections. With significant process and task automation, companies are able to cut down the cost of collections by as much as 60-90% while accelerating the cash receipts cycle with complete and accurate cash applications. Bectran’s clients enjoy the ease, speed, and cost-effectiveness of adopting the Bectran platform. New clients are on-boarded in a matter of days or weeks. Credit professionals in various industries have described the Bectran platform as the future of the credit department.
Dominic Biegel is a Business Development Manager at Bectran. He is focused on helping customers implement the best solution strategy on the Bectran platform. View posts by Dominic Biegel.
The views expressed on this blog are those of the author and do not necessarily reflect the views of Bectran. This blog may contain links to content on third-party sites. By providing such links, Bectran does not adopt, guarantee, approve or endorse the information, views or products available on such sites.
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