The ability to accurately and swiftly allocate cash is the lifeblood of all businesses which send out invoices or bills directly to their customers.
Indeed, problems with matching incoming payments with outstanding invoices have the very real potential to seriously jeopardize the cash flow of a business. Instead of funds flowing healthily, problems with cash allocation means that monies risk stagnating in a suspense account.
With the UK in the middle of a cost-of-living crisis, very few firms can afford a scenario such as this. Indeed, it has never been more essential to ensure incoming funds are put to immediate work.
Against such a backdrop, firms are increasingly analysing how their cash allocation processes can be made watertight and are increasingly looking at the available technology which can power this. Indeed, business IT investment is big business on a global level. The digital transformation market is expected to register a CAGR of 20.8% and revenue is projected to increase from USD 492.43 Billion in 2021 to USD 2,669.48 Billion in 2030.
Therefore, how can businesses ensure their cash allocation technology is performing at the optimal level needed during the current times of economic instability?
The problems with legacy payments
For many businesses that rely on the direct payment of bills and invoices by their customers, the actual cost of processing these payments remains excruciatingly high. Whether payments are received through traditional channels such as Bacs, debit card or cheque or by more recent methods via online banking, faster payments or Apple Pay, they all need allocating.
Yet the fact is that many businesses are not sufficiently equipped to efficiently deliver this critical function.
What also comes with multiple manual payment processes is the high possibility of mismanagement. There is a risk of potentially crippling errors such as misallocation or cash being held within an ever-growing suspense account. Consequently, a firm’s ability to access cash is dramatically reduced, ultimately damaging the financial health of the organisation.
How cash allocation can be revolutionised through technology
Technologies such as optical character recognition (OCR) and intelligent character recognition (ICR) can fully support the cash allocation process.
They can be deployed to automatically capture fields such as the customer’s name, total value, and customer reference number, and therefore play an effective part in the payment matching process that follows. With the advancements in software and technology platforms available, payment matching rules and procedures should be intelligently applied with in-built machine learning capability.
Advancements such as these will ultimately save businesses a lot of money. No longer will they be reliant on labour-intensive models which are leaving them exposed to risk.
Effective and efficient cash allocation
Combining bank data and validation data files with identified remittance criteria enables efficient matching without manual intervention.
The payment matching process can also be enhanced through regular comparison with a debt report so long as it contains a ledger of all outstanding debts. Those companies that are one step ahead will also be taking advantage of APIs (Application Programming Interfaces) and full system integration, benefiting from a streamlined end-to-end payment process with optimal efficiency gains.
Putting the customer experience at risk
Businesses that regularly fail to allocate funds face a huge and costly burden of tracing payments. The customer communication cycle becomes wrongly focused on missed payments through several emails, letters and debt collectors when in fact payment has already been made, severely impacting the overall customer experience.
Outsourcing providers specialising in IT offer the latest payments technology without businesses needing to buy such systems directly. Crucially, the upfront cost of such technology will be met by the outsourcing provider rather than the company itself.
Outsourcing specialists also incorporate other essential functions. These include data-storage and disaster recovery, which are vital in today’s nano-second social media world in which the slightest transgression is flagged instantly by ever-vigilant customers, which can tarnish a carefully nurtured corporate image.
On the face of it, cash allocation for businesses should be a simple process. After all, it “only” involves matching payments with invoices. However, for businesses that send out hundreds of thousands, or even millions, of invoices or bills every month, problems in this supposedly simple process can easily occur.
However, by transforming the cash allocation process, businesses can vastly streamline their systems and free-up invaluable resources. While this is essential at any time, during the current period of economic instability across the world, it is arguably more important now than ever before.