Smart Payments are The Solution to Your Cash Application Challenges

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Published on5 min read

Smart payments bind dollars with data, eliminating the need for manual cash application and helping AR teams capture and reconcile payment data, significantly reduce manual effort, and speed up cash flow.

Smart Payments are The Solution to Your Cash Application Challenges

Given the complex nature of B2B payments, matching received payments with open accounts receivable (AR) is often easier said than done. Layer in customers making partial payments or paying multiple invoices at once, and the difficulties are suddenly more pronounced, with AR specialists being left to investigate why the cash doesn’t neatly map back to the ledger.

What’s worse, with some payment methods like automated clearing house (ACH), it’s not immediately clear what charges they’re related to, given that remittance information (which should include at a minimum—but doesn’t always—invoice numbers, payment amounts, and payment methods) arrives in a separate file that must then be parsed.

But as B2B businesses look to increase their focus on digital payments, there are ways they can circumvent the cash application challenges digital and traditional payments possess. One solution lies with smart payments—which are particularly helpful for AR teams as they give them the data needed to easily reconcile incoming payments with their corresponding invoices.

These are payments that carry critical business information alongside the payment itself so that as businesses transact with one another, there’s data flowing alongside the money, contextualizing it and helping accounts receivable and accounts payable (AP) teams fully understand and assess the purpose of each payment. Smart payments make the entire B2B payment process faster, more cohesive, and less labor-intensive.

A great example of smart payments are those made through an online payment portal powered by a SaaS solution or via an integrated payments solution connected to your ERP. Because of the controlled environment, at the same time the payment details are captured (be it an ACH, credit card payment, or another method), which invoice the payment is meant for is also captured, along with details regarding whether any discounts were applied, and why.

According to PYMNTS.com, “In the smarter payments ecosystem, payments are more than simply moving funds from sender to recipient. These transactions are also about the transfer of data that can inform and improve the payments process.”

To fully explain the utility of smart payments and understand why they’re an exciting concept for businesses, we first need to cover a few key topics, namely:

  • The challenges around traditional cash application
  • The role digital payments and online payment portals play in streamlining cash application
  • The security of smart payments

What is the problem with traditional cash application?

Although the digitization of accounting operations has seen check use steadily decline, traditional payments like checks are still a widely used payment method for B2B transactions, responsible for 42 percent of all transactions in 2019.

To reconcile these types of payments with open accounts receivable, AR specialists must work with remittance data coming from multiple files in paper and digital formats, which are often difficult to read when scanned or may contain errors.

And with some forms of electronic payments, these challenges doesn’t get much easier to resolve. With payment methods like ACH, remittance files are sent separate from their respective payments and come in a variety of formats and channels—everything from Excel and EDI files to images and web portals.

Pulling out the necessary data from all these sources manually is extremely time-consuming, and results in AR teams having to dedicate significant resources to cash application (15% of their staff on average).

B2B finance leaders are coming to terms with the inefficiencies of traditional cash application and are recognizing that in order to remain competitive, it’s time for a new approach to payments.

How do smart payments address cash application challenges?

COVID-19 has significantly reduced B2B businesses’ reliance on traditional payment methods and dramatically increased their appetite for embracing digital alternatives such as ACH, real-time payments, virtual cards, credit, and debit.

In fact, a recent study from McKinsey & Company reported that since the onset of the pandemic, 60% of B2B decision makers are open to making fully remote purchases in excess of $50,000 and nearly 90% believe that going digital will remain a fixture post-COVID.

This is great for B2B customers who are clamoring for payment options that more closely reflect their experiences as consumers. But without an easy way to capture remittance data and match incoming payments with open receivables, accepting digital payments is still a challenge for most B2B suppliers.

Enter online payment portals and payment systems. For critical business information and remittance data to remain alongside their respective payments as they travel from buyer to supplier, the payment itself needs to be made through an environment—such as an online payment portal—where data can be captured at the time of payment and not separately.

With certain online payment portals, you can also create rules requiring customers to provide a reason for making partial payments (from a predefined list), which helps solve one of the biggest sources of frustration in the traditional cash application process. The best payment portal solutions can also integrate seamlessly with your enterprise resource planning (ERP) system so that incoming payments get posted automatically, reducing your team’s workload even further.

These smarter payment methods have the potential to vastly simplify B2B commerce as they apply cash in the right places at the right time, ultimately replacing much of the manual work currently being performed by AR teams today.

Smart payments are both smarter and safer

With digital payments, it’s especially important that suppliers feel secure, as fraud attempts and security risks are top of mind these days for businesses.

As supervisors of their company’s financials, accounting and finance professionals are naturally cognizant of risk and hesitant to embrace digital payment experiences. Smart payments address these concerns head-on, as the best online payment solution providers can ensure transactions are performed securely by tokenizing and encrypting payment data so that it can’t be accessed.

Compliance regulations such as the Payment Card Industry Data Security Standard (PCI DSS) and System and Organization Controls (SOC1 and SOC2) gives suppliers additional piece of mind that sensitive payment data will be maintained in a secure environment.

Now is the time to embrace smart payments

Smart payments ensure that when businesses transact digitally with one another, crucial remittance information will be captured alongside the payment. They bind dollars with data, eliminating the need for manual cash application, replacing mammoth volumes of work for AR teams.

The jump from checks to digital payments might seem like a big jump for your business at first, but with B2B buyers’ expectations changing and finance leaders looking to create much-needed internal efficiencies, smart payments are critical to transforming your accounts receivable for the modern age.

Get in touch with us to see what smart payments look like in action.

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