March 10th, 2016

4 Undesirable Consequences of Manual Cash Allocation

Cash allocation has always been an agonizing, labour-intensive task. Your accounts receivables or dedicated cash allocation team can spending endless hours on manually allocating cash. Manually processing payments received via cheques, credit cards, debit cards, BACS and other payment methods and matching them to the corresponding invoices is not only time-consuming but highly error prone. The end result can be largely inaccurate financial reporting.

In organisations with large quantities of payments and invoices to match, manual cash allocation can result in a number of particularly undesirable consequences.

1. Customers contacted for payment when they’ve already paid

When manually allocating customer payments, there can be quite some delays between the customer issuing payment and this payment being manually allocated. There is a lack of real-time payment visibility with manual cash allocation. This makes it difficult to know which invoices have been paid and which are still outstanding. Therefore, customers could end up getting contacted by your credit control team regarding outstanding payments that they have in fact already paid.

Not only is this inefficient use of your credit control team’s time, but you may end up with some dissatisfied clients who have been unnecessarily chased for a payment they’ve already issued

2. Use of Banks’ Faster Payments fails to have a positive impact

Customers using Faster Payments Services (FPS) to issue payments to a company should help to streamline operations. Payments issued by customers via a bank’s Faster Payment System may arrive in your account within a couple of hours.

However, if you manually allocate cash, your accounts team will be unlikely to be able to allocate these payments until the physical remittance notes arrive days later. This means that rather than a bank’s FPS having a positive impact and speeding up your cash allocation process, they’re likely to just cause a backlog of unallocated payments.

3. Total matching and resolution chaos

In large organisations, there can be payments issued via multiple ERP systems and even payments to various companies or departments within the organisation to contend with. Where such organisations practice manual cash allocation, matching and resolving remittance payments can lead to complete chaos. All it can take is for a customer to apply the wrong discount on an invoice to cause a matching issue which may take hours to identify and resolve.

If unidentified payments land in the collection account, the slightest error when manually re-keying a paper invoice can lead to the cash payment being unable to be linked to the client. Resolving matching issues can absorb a crucial number of staff hours.

4. Company growth inhibited

As long as an organisation commits themselves to manually allocating cash, they will require a team of dedicated staff to process payments. This same team will have a limited capacity to take on additional, potentially higher value work such as DSO reductions and deduction resolutions. The errors resulting from manual cash allocation will also mean there is likely to consistently be money “left on the table” due to data input errors and missed payments.

Company growth will continue to be inhibited as long as a company continues to be unable to move the accounts receivable team to higher value work and leave the organisation vulnerable to a high level of cash allocation errors.

How can cash allocation be more efficient and effective?

An automated cash allocation software solution can speed the process up, achieve greater accuracy and allow the accounts receivable team to focus on more complex and analytical issues.

Take Exide Technologies for example. Exide, a leading electrical energy solutions provider, quickly reduced time spent on cash allocation by 50% and achieved 95% invoice automation with Cashbook’s cash allocation software. You can discover more about their cash allocation transformation by downloading their case study.


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