This article is the second in a series of four outlining how the Bankers Trust Integrated Receivables (IR) system functions and can transform the way a business manages their receivables.
First in Series: How Integrated Receivables Increases Cash Flow for Businesses
Speeding Up Cash Application
Companies spend countless hours each year applying payments from their clients. Recent
advances in Artificial Intelligence (AI) have made it possible to automate these tedious
processes. Most IR providers call this feature Cash Application, and it’s designed to receive,
reconcile, and close invoices in Enterprise Resource Planning (ERP) platforms with no staff input
required (zero-touch processing). This could save your business hundreds of full-time employee
(FTE) hours per year and enable you to reallocate these individuals to higher ROI activities.
How Does Cash Application Work?
IR handles various payment types differently. Understanding the differentiating factors is
important to determine the right system for your business.
- Checks
Most checks are sent to businesses with an attached stub that includes which invoices the
customer would like to be paid (remittance information). Today, most businesses need to capture an image of the check and stub to complete their depositing process and then use
that remittance info to match the payment to the correct open invoice(s). IR needs to transform these images into data to be able to process them. Most IR platforms offer multiple ways to do this.
Some businesses prefer to process their checks internally. In these cases, generally the IR platform will try to capture this data via previous day deposit reports from your bank. IR typically will also need an image file to capture the remittance data for cash app. To do this, the business exports an image file of the remittance stubs to the IR platform.
If a company is looking for true automation, it may be better to purchase a platform that
includes full check integration via lockbox services. Typically, a lockbox team scans,
processes and deposits all checks each day. Images and remittance details are transformed into a data file and automatically uploaded into IR for cash application. Open invoices are associated with the attached remittance data and closed out automatically in your ERP using an AI matching process. - Electronic Payments
Let’s take a closer look at how ACH payments work. Some customers may use ACH to pay for your products or services. When they initiate ACH payments, they may or may not include remittance details within their ACH file. Most IR platforms can automatically process either of these ACH payment types.
In cases where there is no attached remittance data, the sender provides invoice information separately, usually via email. To capture emailed remittance, some IR systems use OCR (Optical Character Recognition) technology. This enables invoice details to be extracted from emails (including attachments) and matched with their corresponding ACH payment, as well as enabling an invoice to be opened in your ERP.
Some of your customers may use a more complex ACH payment such as the Corporate Trade Exchange (CTX) format, which often includes remittance data for hundreds of invoices per payment. This negates the need for your customer to send a separate email. Today, most businesses read this data through a text file. This process is manual, time-intensive and prone to errors. IR can automate the extraction process by reading the raw CTX data. Once extracted, the data is matched with open items via the connection to your ERP.
Wire and credit card payments work similarly to ACH payments. Some will include remittance details in the payment itself, but more likely will include an email or portal where invoice data can be gathered. Processing will work similarly to ACH payments.
What Happens When Payments Do Not Match?
Your team will review the cash application batches for the day to address any exceptions. These are generally presented in a dashboard to allow for easy research, quick decision making and tracking of any follow-up necessary between departments. Any exceptions are presented to
your team for quick decisioning. Some IR systems can learn from those decisions and apply logic against future instances to automate what was once an exception. For example, the system will learn to recognize the email addresses, account numbers, file names, and similar details for
your customers and associate that information with their payments to match and reconcile invoices. As a result, the “hit rate” (percentage of payments automatically matched with invoices, applied and closed in your ERP with no manual input) increases over a short period of
time.
How Does IR Connect to an ERP?
Connection between an IR and ERP system is often very simple to establish. In the case of a fully integrated IR solution, the customer would typically only need to build a secure file transfer portal (SFTP) connection between their ERP and the IR platform. All payment and remittance data will be handled by the IR provider.
An IR provider that lacks full integration will be reliant on a customer’s bank to gather the information needed for cash application. This can add time and potential difficulty to an implementation, but it doesn’t prevent it. Payments often come in various formats (check, ACH,
wire), which may be a problem for nonintegrated IR platforms. The bank or the customer may need to reformat this data into a single format before it can be sent into the IR platform for cash application.
Both system types will require the customer to upload an open invoice file into the IR platform each day. Most IR platforms can accept multiple file variations, which reduces the burden on the customer. Once cash application has been completed for the day, the IR platform will produce a reconciliation file that will be uploaded into an ERP to close out paid invoices. Like with acceptance, most providers can produce customized output files.
Unlock Cash Application
Businesses no longer need to be burdened by significant manual and time-consuming processes
like Cash Application. The implementation of an IR platform provides significant efficiencies
across the accounts receivable process, and it enables staff members to focus on activities that
deliver the most value.
Look for future articles in the series to learn more about the capabilities of IR systems, or
contact your Treasury Sales Officer for more information.
