Here is the brief explanation of innovation advanced in the management solution of accounts receivables. Get to know more about it with the benefits because “A little knowledge is a dangerous thing.”
Evolving societal needs have always encouraged companies’ to expand their businesses and innovate new technology hence, fulfilling the day-to-day necessities of a society. All these new innovations develop workload over an organization including the maintenance of financial position, which requires management of payments, especially for goods & services treaded on credit.
Completed financial position i.e. payments management is done by finance managers and treasurers and they have categorized the payments of credit in two — “Accounts Receivables (AR)” and “Accounts Payable (AP)” because these two plays a major role in companies cash flow.
Account Receivables are the money due on the part of customers who have purchased goods or services from the firm on credit for a short time period only — confirmed via short term IOU (I Owe You) from the clients.
Accounts Payable on the other hand refers to the amount (debt) a company has to pay for the goods and services it has purchased on credit for short-term from suppliers. Both are important aspects of the balance sheet (concluded at the end of fiscal year) though ARs are critical for the firm’s growth and survival.
In addition, collective sums of all customer ARs are written as current assets whereas collective sums of accounts payable are written as ‘accounts payable credit’ on the balance sheet.
Objective of Receivable Management Solution
A receivable management process is necessary as it determines the favorable credit policy for each significant customer. Through AR management solution, users will significantly analyze the benefits of extending credit (if) are more than the cost of maintaining investment in ARs.
Further, it can predict cash flow, if managed adequately because treasurers and finance managers can influence the timing and method used for outgoing payments but not the incoming payments. AR further helps in fundamental analysis, calculation of turnover ratio, optimization of working capital efficiency, management of risk and streamlining of the processes.
Even though with all these efficiencies, companies are facing enormous challenges that affect but differ accordingly like influencing and predicting how or when a customer will pay, identifying, reconciling, and posting incoming flows to customer accounts quickly, etc.
The necessity of solution generated interest among companies in the receivable management solution hence, removing all the challenges and automatically saving ARs ledger account for each customer to gain strength.
One of the examples will help better in the understanding of receivables management solution like — some of the organizations prefer replacing multiple receivables accounts with a single account, currency or multi-currency account depending on the volume of incoming foreign flows.
Though the process works when Regional treasury centers (RTC) or shared service centers (SSC) collects the incoming payments on behalf of participating group companies dubbed as ‘receivables on-behalf-of’, abbreviated as ‘ROBO.’
These essential functions of the finance department and process improves the Days Sales Outstanding (DSO) and working capital further, helps in developing trust and relationships with customers. The solution has yielded in various benefits like fascinating new ways of optimizing processes with new innovations and some of them are -
Virtual Accounts have tangible benefits
Most of the banks (not necessarily) set up virtual accounts in concurrence with ROBO structure, where they create a specific local account details for each customer matching with the external accounts, but specific point to remember, all payments related to the employee are diverted to its physical accounts only.
These accounts help in further reuniting and post incoming flows to the relevant intercompany account that updates the customer’s credit account automatically. Hence, enabling the payment convenience to customer in local account whereas treasurers and finance managers enjoys benefits from concentration of liquidity into fewer accounts.
For optimized receivables, data is harnessed
Virtual account solutions empower customer to understand how rich data on incoming flows can be used to automate and add intelligence to treasury process, though to harness data for enhanced receivables works beyond virtual accounts, for example, DBS’s enriched consolidation receivables solution collect payments from various channels and withdraws the invoice data that further enriches the automation process and analysis.
To extract information, sophisticated technology for solution is used like optical character recognition (OCR) available specifically in PDF format. Additionally, the bank gives instant notification facility whenever cash is received on virtual accounts by the client. This maintains real-time visibility over funds along with other factors like payment behavior, revenues by business line, etc.
Bank provides data in a structured format to the clients, which can be further incorporated with enterprise resource planning (ERP) and treasury management solutions (TMS) — detailed insights for decision making.
Competitive advantages via receivables
With the increasing innovation and adoption, treasurers and finance industry have achieved a better place to use the method, hence creating competitive advantages for firms. These competitive advantages led to the encouragement of digital payments, virtual account solution and enhanced reconciliation solutions among customers, leading to increased convenience, enhanced operational efficiency and customer analysis.
On the other hand of competitive advantages, the QR code is becoming widely acceptable in China, India and increasingly in Singapore, enabling customers to pay digitally. Though these advancements led to the emergence of discrete difficulties, which are solved by the bank’s advice and solutions only.
Adding on, these solutions will expand in the future with customer demands and expanding technology, hence encouraging the idea of robotic process automation and artificial intelligence to resolve or substitute inaccurate and incomplete instructions. Plus adaption of these technologies by clients will tailor their receivable management processes based on data-driven insights to address specific problems for the business.