Next Generation Innovation in Receivables Management
While media attention often focuses on innovation in payments, it is often receivables management where many companies find particularly challenging and could derive greater benefit. Many treasurers and finance managers can influence the timing and method used for outgoing payments, but they have less control over incoming payments. As treasurers seek to optimise working capital efficiency, manage risk and streamline processes, we are now seeing a surge of interest in both established and emerging receivables management solutions.
The receivables challenge
Although every business seeks to manage receivables effectively, the challenges are not necessarily the same in every case. For some, the difficulty is influencing and predicting how or when a customer will pay. Others struggle with identifying, reconciling and posting incoming flows to customer accounts quickly, particularly if data is inconsistent across payment methods, currencies or channels. This affects days sales outstanding (DSO), and could ultimately impact sales and customer relationships. Multinational corporations also have to deal with a proliferation of accounts to receive customer payments in each country and currency.
As a result, it is essential that receivables management solutions are designed around the specific needs of each organisation. For example, some companies have chosen to replace multiple receivables accounts with a single account, either per currency or a single multi-currency account depending on the value and volume of incoming foreign currency flows. Regional treasury centres (RTC) or shared service centres (SSC) then collect incoming payments ‘on behalf of’ participating group companies (known as receivables-on-behalf-of or ‘ROBO’). These incoming payments are reconciled centrally and booked on the relevant entity’s intercompany account, often with a high level of automation. This improves DSO and working capital, frees up customer credit and enables more accurate credit management and reporting.
Virtual accounts, tangible benefits
Virtual accounts are often (although not exclusively) set up in conjunction with ROBO structures. These solutions are now familiar to many treasurers and are offered by leading banks. They allow a company to set up specific local account details for each customer (or for each entity, business line etc.) that resemble external accounts, but remittances are routed automatically to a single, physical account. The virtual account information can then be used to reconcile and post incoming flows to the relevant intercompany account and update the customer credit account automatically. Customers enjoy the convenience of paying to a local account, while treasurers and finance managers benefit from concentration of liquidity into fewer accounts, the ability to automate processes such as reconciliation and account posting, and better insights into customer payments.
“DBS provides virtual account solutions in key markets across Asia, delivering significant value to our clients in their reporting and reconciliation processes, whether or not they use these solutions in conjunction with ROBO. For example, a shopping mall with multiple tenants can reconcile rents more easily, as can FMCGs with a large number of distributors. The bank’s virtual account solutions include multi-currency, multi-country solution capabilities, combined with enriched remittance information on incoming flows to support automated processing and enhanced reporting.”
Navinder Duggal, Regional Head of Global Transaction Services for SMEs, DBS
Harnessing data to optimise receivables
Virtual account solutions demonstrate how rich data on incoming flows can be used to automate and add intelligence to treasury processes; however, the potential to harness and leverage data for enhanced receivables management extends beyond virtual accounts. For example, DBS’ enriched consolidation receivables (ENCORE) solution consolidates incoming payments (both manual and electronic) from multiple collection channels, and extracts invoice data to enrich information for process automation (such as reconciliation) and analysis purposes. This solution uses sophisticated technology, such as optical character recognition (OCR) to extract information from documents in formats such as pdf, allowing significant flexibility across different incoming payment methods.
“These services, which remain unique in Asia, are particularly valuable for clients with a high volume of incoming payments, and/ or that receive a wide variety of payment types, e.g. domestic and cross-border, electronic and manual, consumer and business payments. In these instances, it can be difficult to obtain information in a consistent format for reconciliation. Using virtual accounts to identify the remitter is a valuable first step but beyond this, DBS can enrich and make incoming payment data more consistent to increase auto-reconciliation rates, leading to enhanced days sales outstanding (DSO) and working capital management, and freeing up resources.”
Navinder Duggal, Regional Head of Global Transaction Services for SMEs, DBS
In addition, the bank provides immediate notifications when cash is received on a virtual account so that clients have real-time visibility over funds, including intelligence on customer payment behaviour, revenues by business line etc., without the problem of segmentation across accounts. Through ENCORE, clients receive receivables data from the bank in a structured format that can be integrated seamlessly with enterprise resource planning (ERP) and treasury management solutions (TMS) to facilitate prompt, automated processing and generated detailed insights for decision making. DBS is currently engaged in a proof of concept project with a leading ERP provider to upload enriched data back into the ERP system in an industry-standard format to provide two-way integration and facilitate the use of high quality, consistent data across the enterprise.
Receivables for competitive advantage
As the pace of innovation accelerates in the treasury and finance function, treasurers are in a better position to embrace new and emerging digital payment and collection methods which can be key to creating or reinforcing competitive advantage. These can be incorporated within solutions such as virtual accounts and enhanced reconciliation solutions to provide better choice and convenience for customers on one hand, whilst enhancing operational efficiency and the quality of customer analysis and reporting on the other. For example, QR codes on invoices that allow customers to simply scan the code and link directly to the correct payment instructions, complete with full remittance information, are already becoming popular in China, India and increasingly Singapore.
Corporations have different receivables challenges depending on their industry, geography and business model, so they rely on the spectrum of banks’ advice and solutions to meet these diverse needs. Over time, the spectrum of rich receivables solutions will continue to expand in line with changing customer demands and the availability of new technologies. Increasingly, these solutions will leverage robotic process automation (RPA) and artificial intelligence to resolve or supplement inaccurate or incomplete instructions, predict receivables behaviours and trends and support sophisticated analytics. By doing so, clients will be able to tailor their receivable management processes based on data-driven insights to address specific problem areas for their business, building better intelligence, improving predictability and timeliness of receivables and enhancing working capital management.
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