Jim was a financial accountant, a whiz in Excel, budgeting, and planning. After years of working in product costing, he was “promoted” to Treasury Assistant. The world of Treasury was hugely exciting to Jim but he was warned by the previous incumbent that the bank reconciliations, a key part of the job were soul-destroying. As soon as Jim started, he realized that matching data for 15 different bank accounts, 3 different banks, and 3 currencies was a complete nightmare. There were timing differences, poor reference data, and no tool but an Excel spreadsheet from the previous employee that Internal Audit had dismissed as being unacceptable. After 3 months Jim was at his wit’s end and thinking about switching companies. His career was stalling unless he could automate those bank reconciliations and get into the exciting world of digitization and cash forecasting.
Jim approached his friend Larry in I.T. “Sorry Jim, we’re too busy investigating a barcode scanning system. Then we have a new data warehouse to be completed”. With no support or interest from Larry, Jim realized he had to fix it himself. He began attending webinars on software solutions with deep integration to his ERP system.
After researching a bunch of treasury tools Jim settled on a tool with a 20-year history of bank reconciliations from a company with global experience and great references. With a short implementation time, Jim could see himself getting out of the day-to-day struggle which had broken the soul of the previous Treasury Assistant. He’d seen the product demo, seen the automation, tested the graphs himself, created Excel exports & loved the new reports. He couldn’t wait to get approval from his CFO to get this digitization project started.
Unfortunately, his CFO, Angela had other ideas. “Jim, we just don’t have the cash flow this month. We have payroll to meet, we have 20% of Accounts Payable over 90 days and our Accounts Receivable is just not coming in. I don’t want to commit to this new digitization software when we are being forced to borrow at increasing interest rates, not to mention the costs of factoring & new staff we need in Accounts Receivable for Deductions & Collections. Our DSO has increased with the new Sales Director expanding credit terms and our new online sales portals have meant deductions are growing exponentially.”
Jim was not impressed. Half of what the CFO said was completely incomprehensible to him. Could the AR Collector apply cash received to invoices? What could be so hard? The software tool he wanted the company to buy was of great value and would transform his life. He needed this digitization tool to get out of the never-ending month-end bank reconciliation process. As he reviewed his 10th bank reconciliation, he considered once again the issues he was having. The Accounts Payables were relatively easy with check numbers being an easy one-to-one match. The ACH Accounts Payables were a little more difficult with bulk payments needing to be matched to multiple general ledger items. The Accounts Receivable was a different story altogether though. There were receipts from literally everywhere and he was always going back to Mary for clarifications on money received. Finally, at his wit’s end, Jim approached Mary the Collections Manager.
“Hey Mary, I noticed Accounts Receivables have got a bit high. Are the collections team working the phones these days or is it too hard to do anything working from home?” Not Jim’s most tactful comment. Mary fixed him with a withering stare. “Do you know anything about Accounts Receivable?” Jim realized he’d got off on the wrong foot and quickly tried to cover up. “Sure I do. There is an Accounts Receivable General Ledger balance on the Trial Balance. It doesn’t seem to move much; in fact, it seems to be increasing even though Sales are increasing.” Mary paused and took a deep swig from her coffee. “Jim, you’re new here, aren’t you? Do you know anything about an Accounts Receivable sub-ledger?”
Jim feeling mightily uncomfortable, admitted he was 3 months into his new Treasury role and didn’t know much about it. “I just don’t know why you can’t collect the AR a bit faster!” he said with a bit more force than was intended. Mary replied, “Do you know not all accounts receivable are collectible? Much of our accounts receivable balance that you want me to collect has been flagged by the customer as damaged goods and needs a credit or write-off. If our customers paid to terms, with reliable invoice data in a file format that was easy to read and we had auto-matching tools then I’d have time to collect the collectible Accounts Receivable!”
Jim was a bit taken aback. “All collections are collectible, it’s in the name” he stated trying to keep things light and simplify matters. “Would you like it Jim if you bought a chair, it arrived at your home and you saw it was the wrong color, broken, delivered late, and had the price wrong?”. Jim was sure he had the answer to this. “No way, I’d complain to the supplier and refuse to pay that invoice.” Mary responded “What about if after you got the invoice, refused to pay it you were contacted with a phone call demanding the money for the invoice, followed by a late payment letter, followed by a solicitor’s letter. How would you feel then?”
Jim was getting a bit edgy. “That wouldn’t happen, don’t we have a different area for disputed invoices?” Mary gritted her teeth. “We would do if we bought the collections & deductions software I proposed at our last Finance meeting, right now our team has to manually remove disputed invoices from 10,000 customer statements. The other problem is sometimes we call customers only to hear that they paid us three days ago but the cash applications team hasn’t applied the cash to invoices! They are even more behind than us. Their job should be so easy applying cash to invoices”
At that point, Jessica who led the cash application team walked by. “I beg your pardon. Were you talking about how easy it is to apply cash?” she commented. Jim scratched his head as a deafening silence descended on the office. With a bit of a squeak, he said “Is it really that hard to match a bank statement to some invoices?”
Jessica replied, “do you remember the last finance meeting where everyone else agreed that a cash application tool was unnecessary as there were only two people doing cash application? We are a minimum of 3 days behind and we do make errors because it is actually very hard to apply cash in our ERP system. I wish we had bought the cash application digitization tool that we had reviewed. Our Accounts Receivable has a huge proportion of awkward transactions”. Jim knew he was on dangerous ground but couldn’t hold back. “What do you mean by awkward AR. Can you give me an example?” Jessica smiled this time. “Awkward receivables are a description we came up with. Deductions, discounts, short payments, partial payments, over-payments, disputes, prepayments, double-payments, unidentified payments, bank fees, foreign exchange, split payments, inter-company payments, and on-accounts are all examples of when receivables get complex”.
Jim was not being put off though. “Can’t we digitize the data and apply Artificial Intelligence or Robotic Process Automation to the problem?” Jessica had an audience now as people had started stopping in the corridor to hear this conversation. Everybody knew cash application happened but nobody understood what was happening at the detail level. “We can use digitization for remittances, that definitely needs to happen” Jessica explained. “However, it’s impossible in our ERP system. Think about how we receive information from customers? Right now, we have a Lockbox for inbound checks, bank statements, credit card files, online portals, remittances, emails, PDFs, EDI, and Excel files. These are just some of the ways we receive crucial payment information. And if you think we can get our customers to standardize the data they send us please think again.”
Jessica continued, “what if we had an OCR digitization tool to scan the data. What happens when our customer’s system is set up differently from our ERP data? For example, Customer A pays by invoice, Customer B by purchase order, Customer C by Goods Received, and Customer D by invoices with data concatenated. Customer E does a combination of all of the above & pays for 50 customers with a combination of two different remittance file formats across three different business units and two ERPs. Now we’re really getting into awkward receivables!”
Jim was feeling a little on the backfoot but quickly responded, “Doesn’t our ERP handle this stuff? Don’t they have some sort of file upload we can use to take care of this stuff? They have some Dunning features also I saw it on their website”. Jessica shook her head. “The base ERP we use does basic invoice matching. Nothing like the complexity we face in the real world. Also, it insists on auto-posting everything which leaves a trail of errors on the system which our Sales Team goes crazy about. We definitely can’t use that system. We had trouble with our Auditors last year when they couldn’t find the backing remittances behind the cash application completed.”
At this point, Nicky the Accounts Payable manager was walking past. “Don’t get me started on the Auditors. We got into huge trouble with our business processes this year with the files we’re creating in the banking software. That bank statement system our I.T. team developed took 6 months to test and develop and then it failed on the most basic of audit tests”.
Between Jim in Treasury, Mary from Accounts Receivable, Jessica in Cash Application, and Nicky in Accounts Payable it was obvious that the company needed to invest some money in a digitization software solution that could help them in their daily work. It was at this point that Angela called out from her office “Can you not find one software package that does all those things? Automate cash application, bank reconciliation, collections, deductions, and outbound payments? I don’t want to hire an army of people to fix this. Start looking, people!”
The entire finance team looked at each other and shrugged. At that point, a beep announced the arrival of a new email with a webinar on cash automation solutions from Cashbook.