The key to the success of many companies lies in their finance departments. And the key to success in many finance departments is the embrace of efficient cash application processes.

Traditionally, the cash application — the Process of Assigning incoming payments to outstanding invoices was relatively straightforward.

“15 years ago, most payments in the United States were made by check sent to safe deposit boxes or directly to offices,” Aaron LeHewDirector of Invoice-to-Cash at Eskersaid PYMNTS.

However, organizations face a complex landscape filled with Challenges that can affect financial efficiency.

“Over the years, the use of cash has become increasingly complex, labor-intensive and error-prone,” LeHew explained, noting that companies are moving to more diverse payment methods, including ACH transfers, wire transfers and credit cards And virtual cards, and that this change has made the cash application process more complex.

Payments now come from multiple sources, in different formats and are often decoupled from the transfer details.

As a result, companies must handle data transmitted via banking portals, payment platforms and And Email inboxes, making it difficult to reconcile payments accurately and in a timely manner. This complexity can lead to several problems, including unallocated cash, delayed payment posting and lower customer satisfaction due to improper credit holds and erroneous collection calls, LeHew said.

Rationalization of cash use

The inefficiencies in the use of cash have a direct impact on finance teams and their key performance indicators, such as days sales outstanding (DSO). LeHew explained that when payments are not posted on the same day or the next business day, DSO can be artificially extended, which in turn impacts the company’s financial metrics and cash flow management.

At the same time, delayed or incorrect payment entries can put a strain on customer relationships.

“Customers expect their payments to be accurate and timely,” LeHew said.

Failure to do so can result in disputes, payment defaults, and other complications that impact the finance team and the customer experience.

Faced with these challenges, companies are turning to cloud-based applications to streamline their payment processing processes. According to LeHew, Esker’s own Platform aggregates data from various sources, including enterprise resource planning software, banks And Remittance platforms to create a unified view of payment information. This consolidation enables end-to-end processing where payments are posted quickly and accurately, reducing the need for manual intervention.

“Companies achieve better key performance indicators (KPIs) and overall results by automating cash application,” he added.

One of the main benefits of an automated cash application solution is the ability for companies to minimize unallocated cash. By automating the matching process and handling exceptions more efficiently, companies can reduce unallocated cash by 70% to 80% within six months, LeHew said. This not only improves financial metrics like DSO, but also increases overall workflow efficiency.

Artificial intelligence is another building block for modernizing the payment request process. Esker’s platform, which LeHew cited as an example, uses AI to predict and resolve payment discrepancies. In scenarios where remittance details are missing, AI algorithms can analyze customers’ payment behavior to suggest likely matches that can then be validated by the finance team. This reduces the manual effort required to reconcile payments and allows teams to focus on more strategic tasks, such as analyzing disputes and identifying upstream issues. It can be which leads to payment discrepancies.

LeHew added: as opposed to legacy template-based systems that require manual coding, AI systems may Adapt to changing document layouts and ensure payment data is captured correctly even when formats change. This flexibility speeds up the onboarding process for new customers and reduces the time and effort required to maintain the system.

Impact of finance on business

For finance teams, the key to success is adopting a proactive approach to using cash and leveraging technology to complete routine tasks. And They focus their efforts on strategic analysis and decision making.

Companies looking to evaluate the effectiveness of their payment processing processes should focus on key metrics such as the speed of payment posting and the amount of unallocated cash, according to LeHew. If payments are not processed on the same day or next day or if the level of unused cash is consistently high, this may be a sign that a company’s system is not working efficiently.

Another area to examine is how the company handles disputes and underpayments, he added. By correctly coding these issues and analyzing their causes, companies can identify upstream problems, such as pricing or delivery issues, and make the necessary corrections to avoid future discrepancies.

Finally, LeHew stressed the importance of flexibility in payment acceptance. Some businesses are reluctant to accept certain payment methods, such as virtual cards, because they find them too complicated. However, accepting a wider range of payment options can improve working capital and increase share of customer cash, as businesses can work on more favorable terms for their customers.

For all PYMNTS B2B coverage, subscribe to the daily B2B Newsletter.