Aberdeen Group reports that cost reduction is by far the number one reason that organizational leaders choose to improve processes in their Order-to-Cash cycle.
In this blog post you can learn step-by-step how companies are re-engineering their cash application process to reduce costs and process inefficiencies in Accounts Receivable (AR) by replacing manual work with best practice automated processing– minimizing late payments, avoiding manual intervention to fix invoice errors and receiving and reconciling payments efficiently.
Here are five steps to best practice accounts receivable cash application processing in SAP: Invoice
Step 1. Capture remittance advice (check stub) details with or without the check.
How it works: Advanced OCR extracts and validates remittance advice line item data from electronic image files (TIFF, JPG or PDF) via lockbox from bank (or from scanned paper payment).
Results: Eliminates costs to pay internal staff to key or to pay bank to key and generate BAI2 files. Delivers faster, more accurate processing: eliminates time-consuming and error-prone manual entry.
Step 2. Automatically enter data in SAP to create payment advice note document or other type of clearing document.
How it works: Data (invoice number, invoice amount, date, etc.) from the capture (or electronic inputs, like BAI2), is turned into payment advice note in SAP and is ready to link.
Results: Provides greater accuracy and efficiency from integrating data with SAP Provides complete visibility and audit trail of transaction.
Related: How Automation Adds Up for AP
Step 3. Automate the matching of the payment advice to the customers’ open items.
How it works: Payment advice is connected to the payment (by check number, invoice number or customer number) and payment is applied by posting in SAP.
Results: Faster, more accurate processing: eliminates time-consuming and error-prone manual reconciliation in SAP
Step 4. Automate the cash application post process (matching payment to invoices):
• Matches • No matches
How it works: If there is a match, SAP is allowed to apply the remittance advice to the customer’s line items. Residuals and disputes are resolved: • Overages • Shortages • Write-offs.
Proven algorithms and logic are applied to decide how the payment is applied when there is little or no remittance information, or when the provided information does not match the open items: • Customer history • Customer preference • Statement balances • FIFO, LIFO, etc.
Cases that require approval or review outside of AR are identified and workflow is activated based on business rules.
Results: Reduces manual intervention to small percentage of exception handling. Maximizes revenue by reducing the amount of unapplied cash at period end Enhances customer service through the timely clearing of payments.
Step 5. Generate performance reports.
How it works: Standard and customized reports are produced related to the volume of documents that have been processed: • Volume of remittance automatically matching • Volume of payments received • Volume of payments applied.
Results: Enables increased efficiency, and higher productivity levels and system functionality. Enables quick and accurate troubleshooting. Identifies master data (customer record) issues.
