How to Collect What’s Owed: A Guide for Corporates

When it came to managing its accounts receivables (A/R), Old World Industries found itself with some new world headaches. Even though the maker and global marketer of chemicals and automotive products employed nine people in its Northbrook headquarters in Illinois, US to post cash and handle A/R deductions, the finance office still fell victim to manual, paperwork-based errors. And those errors led to a costly US$500,000 of deductions uncollected because they exceeded the six-month processing time limit.

Old World Industries is certainly not the only company that has dealt with or faces A/R troubles; in fact, many companies have found themselves in very similar predicaments. Nearly 60% of the 80 US companies with over US$1bn in revenues surveyed recently said they are not fully satisfied with their current A/R process. Several survey participants specifically cited the unauthorised discounts and concessions they must grapple with – and would like to conquer lengthy processing time, credit risk management and payment application, among other things. More than one-third experienced US$500,000 or more of such discounts and concessions annually, with 20% facing US$1m or more per year.

These travails are troubling in today’s credit-constrained economy, when cash is critical. Receivables are the best way to increase working capital because they rank among the largest and most liquid corporate assets.

Searching for a Solution

So what’s a company to do when facing the current A/R landscape? Particularly at a time when payment channels have proliferated with online and mobile capabilities – but are seldom integrated. This slows the process for A/R departments and requires more manual intervention to combine payments and other crucial data and information. Additionally, this means companies usually hire more employees to handle such functions. The survey of 80 companies found that the median number of full-time-equivalent (FTE) employees handling A/R was 62.

Old World Industries, however, found a solution. It now uses an integrated A/R platform that’s fully automatic. The system accurately and quickly processes invoices, speeds cash flow and enhances the bottom line. It eliminates manual processing, which triggers an immediate return on investment (ROI) by trimming costs and staff. Since all the incoming cash posts automatically, users can focus on reviewing non-matching payments via a special interface. The technology also provides a deduction management system that routes workflow items to selected internal experts, who access images from their lockbox provider and attach supporting documentation to digital folders. Perhaps the most important feature is that the system interfaced with all legacy and enterprise resource planning (ERP) systems, meaning that it was easy and quick to deploy.

Such A/R technology also:

  • Reallocates staff to other essential work through improved straight-through posting of cash employing dynamic business rules and a workflow engine.
  • Increases the rate of collections by decreasing day sales outstanding, identifying and resolving deductions earlier before they become stale and subject to write-off.
  • Improves credit line access by reducing the dilution associated with deductions.
  • Enhances customer relationships through more timely and accurate data for the review of outstanding invoice deductions.

In the case of Old World Industries, the system and platform now being used is Cash360 from Wausau Financial Systems. It delivers support in three areas – cash application, deductions management and reporting – and each is essential to the overall wellbeing of the company’s cash posting process.

System Benefits

A receivables system can employ business rules and workflow engines while simultaneously serving as the bank/lockbox and company intermediary that matches customer payments with invoices. It can identify non-matching payments based on the pre-established business rules, and routes deductions for resolution almost instantaneously to the designated internal experts. On the back end, extensive reporting and a management dashboard can provide access to key metrics, as well as drill-down access to write-offs and disputed information sorted by customer and customer type.

Using an A/R system that fits with your needs can result in the removal of paper. At Old World Industries, all cash is now posted daily for five company divisions, and by just one FTE instead of four. That employee works an average of six hours a day posting cash. In addition, remittance details of electronic data interchanges are attached automatically to automated clearinghouse (ACH) and wire payments from the bank.

As an early adopter of Cash360 technology, Old World Industries also reduced its deduction management headcount by two people, even though it typically processes nearly 80,000 invoices and 7,500 adjustments a day. And while the company expanded product lines that tripled its sales, the finance department did not have to increase staff in cash application or deductions management.

Furthermore, Old World Industries now monitors small US dollar write-offs more closely. It can single out customers taking a high volume of such write-offs and also of unauthorised deductions, including pricing and returns. It can identify where deductions are taking too long to resolve, either by person, by type of deduction or by customer. It also is actively collecting more unauthorised deductions. This has lead to a reduction in deductions to US$1m from US$4m, increasing the company’s working capital.

The Old World Industries’ experience clearly illustrates that today’s technology can do miracles to eliminate costly A/R headaches. And in the process, it can process invoices quickly, speed cash flow and enhance the bottom line. For any chief financial officer (CFO) or treasurer, what’s more comforting than that?

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