Fintech Insights

Drive working capital improvements: look beyond cash application

Keith Cowart | senior product manager, FIS

August 26, 2020

When facing great economic uncertainty, businesses have more reason than ever to streamline their accounts receivable processes. Companies in many industries have been severely impacted by the COVID-19 crisis – not only because sales have significantly reduced, but also due to delays in collecting payment from customers.

In order to remain viable, these companies are redoubling efforts to bring cash into the business as rapidly as possible. But this isn’t always straightforward. Companies around the world continue to struggle with challenges across the credit-to-cash cycle, from inefficient collections to shortcomings in the cash application process.

While some companies may set their sights on optimizing cash application, this is only one piece of a bigger puzzle. Cash application solutions can certainly reduce operational expenses – but as the focus is on correctly applying cash already in the bank, this type of solution doesn’t reduce outstanding AR or deliver any working capital or cash flow benefits. Companies seeking a significant ROI should aim for more ambitious improvements, from identifying the riskiest accounts to automating manual collections processes.

By leveraging a fully integrated, web-based credit and collections management solution that uses built-in AI to predict which customers – or even invoices – are most at risk of late payment or delinquency, you can prioritize those accounts. What’s more, automated collection processes mean you can contact your entire portfolio of customers multiple times a month. Depending on the size of your company and your industry sector, this can bring DSO improvements of as much of 15 days or more, which can equate to millions of dollars of cash flow improvement.

The benefits of robust collections management are not limited to working capital and cash flow. You can also create benefits for the treasury. The built-in AI can help treasury teams forecast more accurately and give them the tools they need to understand their cash position at any point in time. And like cash application solutions, collections management solutions can reduce operational expenses. Even for companies with few overdue invoices, you may be able to reduce the resources needed to manage collections.

In summary, cash application solutions have plenty to offer when it comes to concrete operational savings. But in times of crisis, companies need to set their sights higher – and businesses aiming to maximize ROI and drive working capital improvements will be better served by focusing on a world-class collections solution that also features cash application enhanced by AI.