Cash & Liquidity Management

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A Collaborative Approach to Efficient Reconciliation Optimising receivables is a growing focus for treasurers and finance managers globally. Ensuring that cash is received as quickly as possible is essential to accelerating the cash flow cycle, providing liquidity and reducing the need for borrowing. However, just as important as receiving cash is ensuring that it is reconciled quickly and accurately.

A Collaborative Approach to Efficient Reconciliation

by Vikram Gupta, Global Receivables Product Manager, Global Transaction Services, Citi and Moussa Soukal, Managing Director, North America, Hanse Orga International Corp.

Optimising receivables is a growing focus for treasurers and finance managers globally. Ensuring that cash is received as quickly as possible is essential to accelerating the cash flow cycle, providing liquidity and reducing the need for borrowing. However, just as important as receiving cash is ensuring that it is reconciled quickly and accurately. Technology can be a key enabler in addressing this challenge. Consequently, Citi recently announced a partnership with leading financial software provider Hanse Orga, to develop a solution that provides close integration between the bank and clients’ ERP platforms, consolidates, standardises and enriches data, and facilitates highly efficient reconciliation.

The importance of reconciliation

Companies globally are increasingly focusing on collections and optimising accounts receivable performance indicators such as DSO (days sales outstanding). To achieve this, they have frequently centralised accounts receivable into shared service centres (SSC) or collections factories, either in-country or regionally. The introduction of SEPA (Single Euro Payments Area) instruments and integrated receivable files in the US is likely to accelerate this trend further by standardising collection methods. By centralising collections, companies can collect cash more efficiently, standardise performance monitoring and achieve consistent processes for chasing collections and reducing delinquency. However, while accelerating collections is one function of an effective accounts receivable SSC, this is not enough in itself to achieve an efficient receivables process.

Companies need to know that cash has been received in order that appropriate liquidity or investment decisions can be made.

Firstly, companies need to know that cash has been received in order that appropriate liquidity or investment decisions can be made. This requires efficient bank connectivity with timely and complete access to bank statement information, an area in which Citi excels, both through its proprietary systems and third party connectivity channels such as SWIFTNet.

Secondly, receivables need to be reconciled promptly against outstanding invoices and posted to customer accounts. These amounts can then be moved out of suspense accounts and cash flow made available, and customer credit limits freed up to permit new business to be signed. Any delays can inhibit efficient cash management and hinder sales efforts, potentially damaging customer relationships and the company’s competitive position.

Technology as an enabler

Citi prides itself on its technology investment and innovation. However, in order to create the financial ecosystems of the future, Citi recognised the opportunity to augment its capabilities through partnerships with third parties to deliver comprehensive, integrated solutions. As Vikram Gupta explains,

“As a bank, we are committed to leveraging innovation to address specific customer challenges. We realised that there was an opportunity to extend our electronic banking capabilities further into our clients’ treasury and accounts receivable environment to facilitate more rapid, accurate reconciliation.”

Facilitating the financial ecosystem

Many companies have invested heavily in their internal ERP platform and/or account receivables systems that offer reconciliation capabilities. However, collections may come through a variety of different channels and in different formats. This can hamper reconciliation efforts as it is difficult to match data fields consistently, resulting in a large number of exceptions. Vikram Gupta, Citi continues,

“The data that clients require for reconciliation is typically held within their systems already, but it may be difficult to harness this data where the technical and information environment is fragmented. We wanted to focus not simply on delivering data through our electronic banking channels, but also on creating an information ecosystem to enable data to be consolidated, standardised and enriched, which would in turn facilitate more rapid, accurate reconciliation.”

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