you are definitely inhibiting growth . No matter how deeply embedded a financial process is within your organization , if it requires more manpower as workloads increase , it is not an effective use of anyone ’ s time .
Thanks to new technology which uses machine learning and artificial intelligence to automate the job of cash allocation , taking it off the team ’ s hands .
Effect of staff changes
Manual cash allocation is usually driven by accumulated knowledge within the finance team . It ’ s their ‘ dirty little secret ’, if you will , and they ’ re probably rather protective of it . That knowledge - often developed over the course of many years - is akin to a ‘ little black book ’.
Little black books are difficult to pass onto new colleagues , and if inside knowledge is required to process payment allocation in your business , what happens when staff are replaced ? This is a common challenge for established businesses that still rely on manual processes , and results in significant disruption when a cash allocation specialist moves on .
Inability to deal with faster Payments
Even though Faster Payments usually arrive within hours , businesses that rely on manual cash allocation are typically unable to deal with them until the paper remittance surfaces .
This might take days ( weeks , even ), and once again places the business in that perilous position of failing to acknowledge that a customer has paid .
There is a common phrase that goes “ old habits die hard ”. If cash allocation in your business relies solely on manual processes and a mixture of paper and digital records , you are definitely inhibiting growth . No matter how deeply embedded a financial process is within your organization , if it requires more manpower as workloads increase , it is not an effective use of anyone ’ s time .
What is more , if several Faster Payments arrive in succession , a backlog is created which takes even longer to clear , putting multiple customer relationships at risk . Rush to reconcile accounts during monthend and year-end
At month or year-end , pressure on manual cash allocation intensifies as the board requests a clean ledger for the next period . This often results in accounts receivable personnel needing to be drafted in to assist with cash allocation , thus taking them away from the job of credit control .
The scramble to allocate disparate payments and invoices during these times will hit productivity significantly and simultaneously create another backlog as fewer staff remain to chase the payments that really are outstanding .
Way forward
By relying on new technology , your business can rid itself of the dangers associated with manual cash allocation .
It is now common enough to enter the supplier ’ s invoice number and payable amount into the computer system , but automated matching requires the complete entry of all line items , quantities , and costs into the system , which can be a considerable chore .
Once this information is in the accounting database , the computer system automatically matches the three documents ( usually using the purchase order number as the index ), compares all line items , and presents a summary of the matched documents to the accounting staff , showing any variances between the matched documents .
The accounting staff can then scan the information and make a decision if the variances require further analysis or if they can be paid as they are .
Rather than waiting weeks for your accounts to be fully matched , the job can now be done in minutes by software , leaving your team free to concentrate on growing the business and keeping customers satisfied .
If you have made a decision to use this best practice , it is useful to compare the savings from eliminating manual matching to the added cost of keying all the documents into the central database . There may also be an expense associated with installing the matching software in the system , though it is usually an integral part of the more advanced accounting packages . Lowend accounting packages do not normally contain the automated matching feature .
Wasilwa Miriongi is a certified Credit Professional currently working as the Managing Director , Del Creder Credit Management Limited . You can engage him on this or related matters via email at : WMiriongi @ gmail . com .