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The Key to Faster and More Efficient Payment Reconciliation Is Here

The Key to Faster and More Efficient Payment Reconciliation Is Here

Author: Russ Oatman, Sr. Vice President, Treasury Management

Digital payment solutions make it possible to easily create and send invoices and even receive electronic payments. However, when considering whether to automate payments, many organizations overlook one of the key benefits of an end-to-end solution: automated reconciliation.

Instead, businesses adopt solutions that provide only partial automation, possibly by using an invoicing tool or working with their bank to accept and receive electronic payments. In situations like these, any advantages gained in either speed, efficiency or cost savings can be lost or diminished by a manual reconciliation process.

On the other hand, automating the end-to-end payments process can boost AR efficiency, relieving the business of manual reconciliation and providing a more accurate view of cash flow in the process.

How Does Payment Automation Improve the Reconciliation Process?

To understand how payment solutions and automated reconciliation work, it’s important to understand some of the challenges associated with a manual accounts receivable process:

  • First, the business issues a purchase order for an agreed upon amount. This is a paper document requiring the organization to physically mail or email a copy to the customer and then file a copy for future reference.
  • When the sale is complete, the business issues a paper invoice, re-entering all of the information contained on the purchase order. The invoice is then manually recorded in an accounting ledger and filed away for future reference.
  • When payment is made, the business must then go back and reconcile that payment to the amount entered into the ledger, as well as the paper invoice copy and the purchase order.

The reconciliation process is a vital step in business accounting. Without this step, businesses risk following up on invoices that have already been paid or annoying customers with repeat payment requests. Even more problematic, without reconciling payments, the business has no clear visibility into cash flow, impeding business growth and profitability.

However, exceptions are most prevalent when businesses rely on manual payment processes, increasing the time it takes to complete this vital payment function. Human error is usually to blame, causing mismatches between the information contained on purchase orders and invoices.

End-to-end payment automation simplifies this entire process by removing inefficiencies and reducing the number of errors. First, purchase order details are entered into a digital interface and stored electronically. When the sale is complete, the system pulls the information used on the purchase order to generate the invoice, maintaining greater consistency and reducing the incidence of error.

The system then monitors the invoice for payment, sending alerts for invoices that are past due. Better yet, since payments can now be accepted electronically, the process of reconciliation happens without the need for human intervention. When payment is received, the system updates the general ledger and files an electronic copy of the invoice, without the need for manual input.

Realizing the Advantages of Automated Reconciliation

A payment automation study conducted by Sterling Commerce indicates that automating the payment process can reduce invoicing errors by 3%. This can lead to fewer exceptions, creating a more efficient reconciliation process and a more accurate view of cash flow.

Since automation also replaces the need for manual reconciliation, it takes fewer man hours to manage the process. Companies can then reallocate resources to more value-added tasks.

Overall, the Sterling Commerce study indicates that automating the accounts receivable process reduces costs by 44%. While cost savings can be quite a head turner for businesses, there are additional advantages to payment automation that can accelerate business growth.

At FNBO, we realize the increasing need for automated payment solutions and are in a unique position to deliver. We offer bespoke software that integrates with our clients’ processes using application programming interfaces or APIs.

APIs make it easy to adopt payment solutions without initiating changes to existing systems or software. The plug and play functionality of automated solutions like these allow businesses to quickly and easily transform their payments processes and realize the benefits of automated reconciliation for greater visibility into cash flow.

Learn more about FNBO’s payment management solutions.

About the Author
Russ is the Senior Vice President of Corporate Treasury Services. He and his team are responsible for providing innovative payment solutions to commercial clients nationally. His responsibilities include managing customer relationships and developing new products that enhance client accounts.