How Payment Errors Put Growth on Hold

Walk into the back office of a middle-market enterprise, and you might see a mountain of paper, physical or digital, piling up in inboxes, enterprise resource planning (ERP) systems and spreadsheets.

It’s not an uncommon sight. At the heart of this chaos is cash application, a crucial but often overlooked link in the financial supply chain.

For many companies, cash application is complex. Payments arrive by check, ACH, credit card and a growing list of other methods, each with unique data challenges. Customers send varying levels of detail with those payments, with some specifying exactly which invoices they’re covering and others leaving the accounts receivable (AR) team to puzzle it out.

If payments aren’t applied correctly or quickly, cash flow stalls and working capital is trapped.

Every customer adds another layer of complexity. One pays by check, another by ACH, another through a portal, Billtrust Vice President of Product Dave Ruda told PYMNTS. When that is multiplied across an entire customer base, and new methods arrive every year, it’s easy to see why AR is overwhelmed.

At its core, cash application is about reconciling the invoice, the payment and the remittance advice, or the details about which invoices the payment is intended to satisfy.

That sounds straightforward until you scale.

Every payment comes with different amounts of data, sometimes detailed, sometimes cryptic. Multiply that by tens of thousands of customers, and the scale of the challenge becomes clear.

“You might be my customer, and you pay me with a check and give me more information than [another customer] down the street, who also pays by check but tells me nothing,” Ruda said.

“[All] this information [is piling up, crashing in] from portals, from email, from all these different modalities of delivery,” he added. “And [some poor soul must] go and collate all of that.”

As cash application typically goes, the end-of-month close sees workers scrambling to reconcile the books and determine how much money came in.

Historically, companies have relied on deterministic rules to tackle cash application. If the invoice matches the payment amount and the remittance aligns, the system clears the transaction automatically. But such perfect matches are the exception; variance is the norm. Think checks for partial amounts, mismatched invoice numbers or lost data during analog-to-digital conversion.

However, this key workflow is becoming a hotbed for technological transformation.

Borrowing concepts from predictive algorithms, Billtrust’s platform uses confidence-based matching. The platform builds histories of how each customer tends to pay and structure its remittance data, creating behavioral fingerprints that guide matching.

“Where one does not equal one across elements, what we look at is the probability of a match,” Ruda said, adding that the 10-person team that used to spend hours reconciling exceptions can now do the same work with a fraction of the staff, freeing the rest to focus on higher-value priorities.

Still, many companies built their AR processes decades ago, when spreadsheets were the only option. Resistance to change, rather than a lack of technology, often keeps companies stuck.

“The back-office function is typically the last department to modernize,” Ruda said. “At a certain point, companies grow to a certain size, and they [realize they can’t keep throwing headcount at the problem.] And then they land on the real problem and look for solutions.”

The benefits of faster, smarter cash applications extend beyond efficiency. They strike at working capital, the lifeblood of business, where the impact cascades. Faster settlement improves liquidity, fuels growth and strengthens customer relationships.

“Imagine you own a retail outlet, and a customer just bought a million-dollar truck on credit,” Ruda said. “They come back the next day wanting to buy another, but their credit line is exhausted. The sales rep checks the system and says, ‘I can’t sell you a truck today. You haven’t paid me yet.’ And the customer says, ‘I sent you the check yesterday.’”

In a manual, paper-heavy process, that check might be buried for days, preventing a new sale. In an automated system, it clears the same day, unlocking credit and enabling the deal.

Beyond settlement speed, the data aggregated through cash application has the potential to improve forecasting. Ruda pointed to the holy grail of finance operations: straight-through processing (STP), or same-day settlement.

Companies may pour resources into modernizing marketing and products because those functions are tied directly to growth. But AR and finance can accelerate growth just as effectively if they shed their paper avalanches and Excel habits.

“Finance is a [growth enabler] because it unlocks your working capital,” Ruda said.

In times of economic uncertainty, that function grows even more critical. For companies still buried in spreadsheets, the mountain of manual work only intensifies. But for those ready to modernize, cash application offers not just relief. It can deliver a lasting competitive advantage.

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