|The cost of not using technology for remittance-details processing
Boston, July 10, 2013 – When middle-market businesses pay invoices, they frequently combine more than one invoice in a single payment, take discounts, and make other adjustments to the payment amount based on overpayments for previous resolved deductions or underpayments for disputed items, according to a new report from Aite Group.
This situation creates discrepancies between invoiced and payment amounts, derailing initiatives to use straight-through processing (STP) to optimize receivables processing as well as delaying invoice settlement and cash posting. Aite Group's research finds that this is creating challenges for working capital management among middle-market companies (revenue of US$50 million to US$500 million).
During March and April 2013, Aite Group conducted a survey with 60 receivables experts at US-based middle-market companies to determine the challenges that middle-market companies experience with business-to-business (B2B) receivables and cash application.
“The greatest percentage (69%) of middle-market companies experience remittance data processing pain because their back-office systems do not support automated matching of electronic remittance and payment data, strongly suggesting a need for greater automation and integration with back-office systems,” says Nancy Atkinson, senior analyst in wholesale banking at Aite Group. Companies report that an average of 7.9 full-time equivalent (FTE) employees investigate and process exceptions or discrepancies between the payment amount received and the amount their company invoiced, and nearly one-fifth of companies have more than 10 FTEs processing exceptions.
While banks and third parties offer lockbox services to automate and streamline companies' receivables processing, remittance-details data capture, and reporting, middle-market companies use such services only minimally. Just 18% use a bank or third-party lockbox, which is a big contrast to the 67% of large corporations that use lockbox services for at least some of their receivables processing. The middle market, especially those companies approaching the upper end of the category, should be particularly interested in lockbox services.
Aite Group asserts that recognition technology selectively applied to forms processing, check processing, and fraud prevention for checks could improve STP rates for companies' receivables processing and cash application.
Aite Group's wholesale banking clients can download the report here.