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Enhancing the control, compliance, efficiency and auditability of cash allocation in one easy step

February 12, 2013

Accounts Receivable is a time consuming activity, reliant on historical knowledge that is non-transferable. Staff can spend an entire day matching-up amounts received from various sources, such as Wire Payments, Lockbox files, Cheques, BACS, Faster Payments, CHAPs and Credit / Debit Card payments, to open items on a sales Ledger; often without the benefit of remittance advice notes.

Which client does the payment relate to? Is a reseller paying on behalf of an end user? Are they paying multiple invoices? If so, which ones? Are there credit notes to be taken into account? Does the value paid match the remittance advice that has been sent?

It’s a tedious and yet essential activity and one which builds up to panic levels at month-end, when full reconciliation is required as part of the process of closing the accounts. Unallocated cash totals should be disclosed to management for reporting purposes, along with the current state of the debtor day’s statistics.

Often the solution is to enlist staff from other departments, or excessive overtime, to ensure that the maximum allocation between the sales ledger and the received monies is achieved. Even with all of this effort there is still the usual percentage of exceptions which are an inevitable result of human error and result in an even higher workload.

Automated Cash Allocation – AR ProcessFlows

This expensive manual process can be a thing of the past, with automated cash allocation. Balances are matched to remittance advices as they are received, thanks to the knowledge that the system is taught, which also removes the reliance on retained knowledge. Where no remittance is available, allocation can still occur based on intelligent algorithms which work in the background to present users with the best fit option; taking into account elements such as credit notes or early payment discounts. All of the hard work of the allocation is taken care of, leaving users with the option of ‘one-click’ allocation. Within 3 months you will see that automatic allocation can be as high as 85+%, and your receivables staff will be more able to focus on other activities.

Not only does this automation improve the process of allocation, but as all received remittance advice is captured and stored electronically as it enters the organisation, the audit process is also greatly improved, with an audit trail from the invoice to the allocation of the payment. In combination with the bank reconciliation being completed on a day-by-day basis, month-end really is just another day.

Along with this, you will see a sizable reduction in unallocated cash balances; one organisation for example has gone from £4,000,000 unallocated cash to £4,000, in just 6 months.

As well as delivering back-office process enhancements, automated cash allocation ensures efficiency ‘at the coal front’ – an essential ingredient for good customer service in any industry, or sector. No longer will a credit control team need to be told that ‘this invoice has been paid’ and there is even more efficiency gains in areas other than the receivables team.

The result is calm, less clutter and well informed staff who have the most up-to-date cash flow information at their fingertips at all times and the resource to deal with more important, added-value tasks.

Trade counters, hire and leasing, insurance, credit agencies and credit unions … in fact any organisation that has to cope with large volumes of cash receipts every day will reap the benefits of automated cash allocation within months.

More Information

If you would like some more detailed help and advice on how to move to a more streamlined and automated cash allocation process, contact us on +44 (0) 1962 835053 or enquiries@processflows.co.uk.

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