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5 Steps to Receivables Optimization

  • By Seth Blacher
  • Published: 9/17/2018

Most businesses embrace ACH on the payables side in order to automate AP processes. But many, if not most, of those same businesses prefer not to receive ACH payments because they can wreak havoc on AR processes.

One organization told me, “With the transition to ACH from lockbox, auto posting has dropped from 75 percent to 46 percent.” When you receive electronic payments and then apply and post them manually, it really defeats their promise and purpose.

To gain the full benefit of moving from paper to electronic payments, start by understanding your challenges. Talk with your AR clerks. Study your processes. Find out how many days it takes to post a payment. Once you identify the problems, you can set out to find the solutions.


Step 1: Analyze your current payments mix. Calculate your current volume of checks and electronic receivables in both dollar amount and quantity, then compare these numbers with your ideal goals.

Step 2: Be proactive about electronic receivables. Take time now to plan exactly how to manage your growing volume of electronic payments. What will change in how you present, receive, 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 or any bank solutions you might adopt.

Step 3: Plan for partial payments. Unforeseen circumstances beyond AR’s control always will 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 help build effective customer relationships.

Step 4: Strengthen your data matching. Matching failures occur when electronic payments arrive with little or no remittance information and when remittance data comes by 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 the Corporate Trade Exchange (CTX) Standard Entry Class code for ACH payments. Your bank should be able to provide you with letter templates that explain the payment types you prefer and—more importantly—how customers should send information with their 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.

Step 5: Consolidate 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.

From problem to solution

The typical company takes up to six days to post a payment, according to research by the Aberdeen Group. With receivables automation, you can post electronic payments in one day, two days, or less. I know a mid-size company where cash application took one to four days before they automated the process. Now they’re posting all cash by 10:00 a.m. daily. The right receivables management service will enable you to post from 50 percent to 90 percent of electronic payments—or more—with no manual handling whatsoever. And the more payments you can handle electronically, the lower your cost per payment received.

Far too many receivables managers view electronic B2B payments as a problem when, in fact, they can be the solution that speeds your processes, streamlines your workflows, and increases your working capital. That transformation happens when you automate the handling of electronic payments from receipt to posting. 

Seth Blacher is senior vice president, head of receivables product strategy for treasury management at Wells Fargo. Blacher will discuss ways to improve your B2B receivables operation at AFP 2018. Learn more here.

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