Taking the Suspense out of Cash Allocation – Automated Cash Allocation Software
In our last blog in this series we looked at some of the problems surrounding manual cash allocation. In this edition we focus on enhancing and optimising the process using automated cash allocation software. With the choice of multiple tools on the market, we highlight the key capabilities needed as well as look at the case for a fully integrated platform that not only addresses cash allocation, but has re-usable components that can be used for automating other financial and non-financial based processes.
Automated Cash Allocation Software helps organisations to:
- reduce their DSO (Days Sales Outstanding)
- improve cashflow and forecasting
- reduce or eliminate suspense accounts
Read about the experience of a Finance Director using technology to eliminate suspense balances here - improve employee and customer engagement
Sources of Data
One of the biggest challenges with the cash allocation process is the number of sources of information that is required to reconcile payments. Data needs to be collected from remittances and bank statements and it can arrive by email or need to be pulled from portals.
Email channels provide specific challenges as remittances can be sent to different mailboxes, be received in different formats (from PDF to Excel as well as links to portals) and remittances themselves have their own semi-structured format with each organisation having their own template, positioning of data and variance in naming convention for fields on the document (e.g. Invoice Number, Inv No, Reference Number etc).
Whilst bank statements remain fairly consistent, extracting the data in a way that is user-friendly for comparison to remittance data is not always straight forward and all too often we see organisations with print-outs of bank statements that cash allocation teams are manually ticking of payments.
Cognitive capture technologies help with not only the initial acquisition of the documents and data, but extracting and formatting data in a way that can be used by downstream capabilities. The technology is able to monitor inboxes for new items, classify emails and attachments to identify only relevant documents for the allocation process, before automatically extracting content from different formats of attachments.
Whilst extracting data, validation checks can be performed to ensure data being extracted is as expected and any exceptions can be raised for intervention from one of the cash allocation team. This may be used to confirm that data being extracted is accurate and will not cause an issue downstream, in the case where a customer has used an incomplete or incorrect reference number that will fail subsequent matching.
Where the Cognitive Capture engines have identified notification emails that provide a link to remittances that are ready on a portal or where a bank statement needs to be pulled from the banks systems, Robotic Process Automation (RPA) can be used to automatically access and perform the task of downloading the correct details. This saves users from having to repetitively and manually login, access and download details as well as ensuring tasks are not duplicated or missed.
Matching
The critical piece in the cash allocation process is the matching of payment, remittance and invoice information. In an ideal world this should all match up; what has been billed, subsequently paid and the confirmation of the payment should all be the same with a common set of reference data existing across the three elements so they can be seamlessly linked. In reality, that’s not always the case.
Challenges arise from organisations using alias or pseudonym names, different banking details, as well as the settling of multiple invoices in a single transaction or part payment. These all add to the challenges of allocating cash and the chance to misallocate and negatively effect the DSO (Days Sales Outstanding).
Once documents have been retrieved and the data has been extracted and validated, the matching process commences with a combination of configured rules and artificial intelligence. This has the greatest impact in terms of speed to deploy and effectiveness over time. This combination of design time machine learning and iterative machine learning means the technology is constantly learning and this helps to reduce queries and exceptions over time.
There will always be some exceptions but the strength of the automated platform is being able to identify potential issues and flag these. By using the automated approach, exceptions are identified much faster and team members have more time to handle these, and where possible their input can be used for further system training.
Process Insight & Auditability
As with any financial process, cash allocation needs to stand up to the rigours of internal and external auditing requirements. This means knowing the process, having a record of the steps that have been undertaken and ensuring the process is followed. In a manual world this can be challenging where there is reliance on paper records, separate spreadsheets or heuristic operator knowledge.
In addition, manual processes can be difficult to diagnose where there are bottlenecks or, as importantly, where there are opportunities for process improvement and tends to be a judgement call based on limited data which is subjective and open to misinterpretation.
Automated platforms use and surface up large amounts of data. Not just the information that is collected from documents and portals for processing, but the attributes of that data; when it was collected, how long it took, who interacted with it for how long and where it ended up. Used in the right way, this information can be re-purposed into accessible metrics and dashboards that provision the organisation with useful information for informed decision-making processes.
Intelligence on the process can enable an organisation to not only satisfy audit requirements by being able to see all the steps that were undertaken in a process, but also automatically highlight potential areas for improvement and optimisation.
In addition, operational information on statuses of transactions and items that require users with deep knowledge of the process and customers can be presented in easily accessed and actionable workspaces. In an accounts receivable domain, the automated cash allocation software can be used to highlight to users transactions that fall into queried and unallocated categories and ensure priority is given to specific transactions.
Integrated Platform
When considering the various options for automated cash allocation software, there are a number of disparate components that are available to solve the various elements of the process. On the face of it, it’s possible to stitch these together to create an end to end solution, but that may not be the most optimal way of proceeding and it may be simpler, more cost effective and have greater longevity to consider a fully integrated platform that includes all these elements. This is neatly summarised in research from Forrester:
Research from Forrester in January 2020 found that 98% of organisations surveyed (out of 196 automation and AI decision makers using a piecemeal approach to automation) reported that adopting an unintegrated approach to automation resulted in unanticipated challenges. Two of the most significant challenges reported — high technical debt (46%) and delayed success (35%). The report concludes that for firms adopting a piecemeal approach to automation that this approach can be more expensive, difficult to maintain long-term, and ultimately one of the biggest challenges in achieving business outcomes.
Re-Purpose Components
In addition to the consideration of an integrated platform, the decision around whether the technology used should be a point solution, specifically targeting the single use case of cash allocation, or whether the components can be re-purposed for other financial and non-financial processes that require automation within the organisation.
Many processes will involve the need to collect data from various sources, aggregate it, perform a series of activity steps or workflows and be able to audit the process and have actionable data. As a result of this, considering a platform that is built to accommodate multiple use cases across the organisation can lead to economies of scale, reduced operational overhead costs as well as shared learning and co-operation across teams using the platform.
About Telic Digital
Telic Digital deliver fully integrated intelligent process automation platforms that address multiple business process requirements. We work with internal teams to assess processes, define requirements, and use our experience to ensure that solutions deliver measurable outcomes.
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