Manual AR Slows Cash Forecasting

Treasury departments where manual processes are still prevalent are struggling with getting timely information on accounts receivable, according to a recent report from Boston consultancy Aite Group. That slow stream of data on payments impedes a company's ability to accurately forecast cash flows, which has become critical in uncertain economic times.

For example, paper checks that are not accompanied by remittance stubs must be handled individually to match them up with their invoices, says analyst Judson Murchie, one of the report's authors. "Until that's applied, companies can't count this income as liquidity," says Murchie. "Someone may have underpaid or overpaid, and they need to figure this out."

Some companies have five to 10 people whose job it is to reconcile payments that have come in, he says. "It slows things down and costs money. In this environment, receivables processing is becoming more important," Murchie adds.

While banks have been providing most of the systems to streamline accounts receivable, third-party vendors are increasingly encroaching on this space, filling the gaps left by the banks.

The processing of paper checks is only the beginning, Murchie added. In fact, it's easier to add account or invoice information to go with a check by asking the payer to include a remittance stub. "With electronic payments, it is still harder to provide remittance information," he says. "It requires more work."

Progress is being made in this area, he says, as ACH and FedWire have both expanded the amount of information that can be included with a payment transfer.

Banks and vendors can better focus on the broader process, he says. "A lot of the receivables systems support checks, ACH or wire payments, but they haven't accounted for purchasing cards or credit card transactions." And the latter can account for 5% of payments or more in some industries. "There is a widespread need to incorporate all the different payment vehicles," Murchie says.

According to Aite, wholesale lockboxes currently account for 50% of bank revenues from receivable products, with the rest evenly divided between retail lockbox and check processing. By 2011, remote deposit capture is expected to grow to 35% of bank receivables-related revenues.

Any delays in processing payments can have a ripple effect, Murchie added. "A lot of the transaction-level information that the treasurer and controller and CFO are looking at comes from the accounts receivable group," he says. "If that information is not complete, if they're slow in reconciling payments, the cash forecast might be a little off."