Basware and Mastercard – can we automate the reconciliation in P2P and O2C?

Jason Busch recently wrote about Basware and Mastercard’s recent survey of over 1,000 finance professionals (on both the accounts receivables and accounts payables side of the fence) in multiple countries. See Mastercard and Basware – Exploring Payments and Discounting (A Tragic Irony)

Basware has the largest electronic invoicing network in the world — one million organizations generating 80 million transactions a year, worth $500 billion, and growing at 50 percent annually.

What I found interesting was that 1 in 4 businesses claimed to have highly automated processes with fully optimized systems to manage invoice payment efficiently. I find this fascinating because the truth is that the “pay” part in Purchase-to-Pay flows and the “cash” part in Order-to-Cash flows are totally disconnected. When companies pay their suppliers (cheques, ACH, cheque to ACH, wires, SEPA credits, pcards, etc.) and sellers post those payments, a whole lotta stuff can go wrong.

Payments made electronically (whether via EFT, ACH, etc.) may not match invoice amount for a variety of reasons, for example:

  • The payment is less than the invoice
  • The payment is made for multiple invoices
  • Bank fees are deducted – and these can be massive, especially for international wires.
  • Short pays or early pays with discounts are involved
  • Discounts are taken that are not warranted, etc.

From Basware’s survey, it appears 3 in 4 respondents have the typical challenges in the payment process. In fact, cheques are still the most common form of B2B payments.  By primarily sending cheques out for payments, buyers are not trying to automate the settlement process from the A/R (or vendor) side.  This creates many problems, for example:

  • There are no controls to ensure payments are made to terms
  • No formal review of opportunities for taking discount of early payment
  • No or limited cash forecasting

This becomes apparent when the supplier or recipient of the electronic or cheque payment must apply the cash to their ledger.  Problems abound and the painful process of reconciliation begins.

Their survey also found that 48% of businesses surveyed have more cash in the bank compared to a year ago. As they state, “While a certain level of cash hoarding may beunderstandable given the financial climate, it also reflects inefficient processes and poor practices.” Considering large companies spend billions on various categories,  having to keep buffer cash because of poor AP practices certainly can contribute to this increase. Yesterday I posted on How Corporates segment cash to invest in Supply Chains   A big portion of operating cash is kept to pay AP.

If the Basware-Mastercard solution can help both Buyers and their Suppliers solve both payment initiation reconciliation and cash application reconciliation, than anything they do around finance will be a big bonus.

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