Project Description

Three business employees at a conference room table reviewing process documentation and ideation flow on walls/windows.Leveraging electronic payments in your company’s receivables creates a win-win situation for your cash flow — and your customers. But as more B2B companies forgo checks to pay by ACH, commercial card, or wire, many accounts receivable (AR) departments are struggling to post their electronic receivables efficiently. Too often, the remittance data behind electronic payments still requires cumbersome manual intervention.

Taking time now to improve your electronic receivables process is a wise strategy. NACHA predicts that in the next two years, ACH transactions will overtake checks as the preferred form of B2B payment. By 2020, it anticipates a B2B receivables mix comprised of 45% ACH, 34% checks, 12.5% cards and 8.5% wires.1

Greater receivables automation also boosts organizational performance and working capital. Top companies convert their cash three times faster than their peers, resulting in savings of 39% in DSO — or $48.2 million for every billion dollars in sales. DSO for these peak organizations stands at just 28 days, compared to the median 45.6 days.2

Best practices for optimal efficiency

How can your organization optimize your electronic receivables and reach these efficiency benchmarks? Start with these best practices.

  1. Analyze your current payment mix. Moving forward begins by understanding where you are today. Calculate your current volume of checks and electronic receivables, in both dollar amount and quantity, then compare these numbers with your ideal goals. Next, review your payment terms and discounts to see where additional opportunity exists.

    With this knowledge, you can quantify the impact that even a day’s gain in DSO will make to your business, and adjust your approach with customers accordingly.

  2. Be proactive about electronic receivables. Take time now to plan exactly how to manage your growing volume of electronic payments. In particular, what will change in how you present, pay, and post when payments go digital? Work with your bank and your customers to ensure you receive timely and complete information, in electronic formats compatible with your systems.
  3. Plan for partial payments. Unforeseen circumstances — beyond AR’s control — will always occur. But forethought and system enhancements can minimize the exceptions these situations often cause.

    For example, when goods arrive damaged or in the wrong quantity, B2B customers may remit partial payment and apply proprietary deduction codes to their invoices. Taking time upfront to map these customer-specific codes to your organization’s AR system will speed cash application and build effective customer relationships.

  4. Strengthen your data matching. Exceptions are a top cause of poor DSO. Many happen because electronic payments arrive with little or no remittance information, or when remittance data comes via a separate channel, such as email. This impedes straight-through processing.

    Communicate to your customers about industry-standard remittance formats that can streamline cash application and posting, such as CTX files for ACH payments. Help customers understand that they also benefit from a smooth receivables process, through improved credit availability and greater access to the goods or services you provide.

  5. Process fewer data streams. When every payment method requires its own work flow, staff efficiency slows and cash flow suffers. Instead of processing separate data files, one at a time, integrate your receivables and post them all electronically. Today’s technology makes it fast and easy to consolidate all your check, ACH, wire, and card transactions into a single file that’s primed for straight-through processing.

Whether your receivables process is basic or sophisticated, there’s usually room for improvement. Your bank can help you identify opportunities, share best practices, and implement new solutions. Making efficiency and automation a priority now will help you reduce the cost of processing payments, speed your cycle time, optimize your working capital, and strengthen relationships with your key customers.

For more information, contact your treasury management representative.

1.  NACHA, “ACH Transactions to Top Checks as Top Form of B2B Payment by 2020: New Survey,” June 26, 2017.
2.  Hackett Group, “2017 U.S. Working Capital Survey”.