From the Practitioners’ POV: Understanding AP, AR, and Cash Management

From the Practitioners’ POV: Understanding AP, AR, and Cash ManagementResearch on the financial sector can often forget to account for a critical perspective: the point of view (POV) of practitioners. It can be easy to spend so much time on recently acquired data, news headlines, and the macro-trends impacting the field that the experiences of industry practitioners can get marginalized.

At best, forgetting to account for practitioners’ POV within organizational practices can lead to stagnation in improving processes—at worst, guidance and analytics can miss the mark, resulting in missed business opportunities, misallocated resources, and dissatisfied employees.

Aite-Novarica Group takes the perspectives of practitioners seriously. Most of the advisors on our team have industry experience themselves, and all of them have frequent conversations with current practitioners to better understand the challenges and opportunities in niche areas of the financial ecosystem. Paul Kizirian, Strategic Advisor with the Commercial Banking & Payments practice, for example, built the first ethnographic consulting practice in financial services when he was with Wells Fargo, a process that was covered as a case study in this book.

He has brought that same attention to practitioners’ voices into his role at Aite-Novarica Group. In a recent series of reports, he makes a clear case for the importance of considering the daily ins and outs of practitioners in accounts payable (AP), accounts receivable (AR), and cash management. Key takeaways from each of these reports are highlighted below.

Accounts Payable

Financial institutions and vendors have developed numerous solutions to streamline or increase efficiencies in corporate treasury. However, as noted in Accounts Payable Solution Adoption: Determining Success or Failure, there is often a disconnect between treasury, AP, and the broad solutions offered by banks and vendors that directly impact the daily process of issuing payments.

In essence, solutions are developed, sold by banks or vendors to commercial clients, and sometimes receive interest from treasury. But when it comes to AP, they often hit a roadblock. This is frequently the case when neither the bank nor corporate treasury fully understand the needs and business requirements of AP.

When implementing new payment solutions for AP, there are six nonnegotiable factors to consider:

  • Organizational structure
  • Accounting procedures
  • Working capital implications
  • Vendor relationships
  • Invoicing process
  • Payment process

Each factor takes into consideration the daily processes of AP and, ultimately, the AP practitioner’s POV. Without the practitioner perspective, internal controls, accounting rules, and other critical aspects of the daily practice of making high quantities of payments within strict guidelines get lost in the language of automation, efficiency, and digital payment files.

New tools shouldn’t introduce additional risk for accounting, create payment disruptions, or cause any number of other problems. Banks and vendors should understand the importance of AP practitioners’ POV when it comes to proposing payment and other treasury solutions to commercial clients.

Accounts Receivable

A similar set of issues arises in AR, the department responsible for processing a company’s revenue. The report Accounts Receivable: Untangling Cross-Channel Complexity illustrates the daily operations and challenges of AR.

A major pain point for AR comes down to payment type. Each type creates a different workflow process, which can be compounded by B2B versus B2C payments, different lines of business, and different locations, all requiring daily reconciliation. Adding to the difficulty here is that many AR processes require manual effort.

Understanding the daily operations of AR can help banks and vendors develop better solutions for their commercial clients. As noted in the report, effective automation is key to increasing efficiencies and reducing workload in AR. There is no such thing as one-size-fits-all automation.

In this report, Paul provides a detailed checklist of things to consider when developing an AR solution. These include: whether bank reports provide sufficient detail/addenda, auto-matching capabilities, and digital wallet integration, among many other factors.

In general, adoption comes down to matching the many capabilities that, from a practitioners’ POV, help fulfill the complicated function of AR. When boiled down to the basics, this function includes collecting receipts quickly and posting to accounting systems accurately. Financial institutions and vendors, once they understand the daily pain points and guidelines of AR procedures, can increase revenue by targeting clients with specific solutions.  

Cash Management

The title of the person responsible for cash management within organizations varies: finance manager, controller, treasury manager—the list goes on. Regardless of its leader’s title, cash management often utilizes a treasury workstation (TWS), an enterprise resource planning module (ERP), or other cash management platform to aggregate account balances into a daily cash spreadsheet, which ultimately impacts liquidity.

Not only do accounts matter, but so does the value of anticipated transactions in order to provide an accurate picture of the company’s cash position. The perspective of daily operations and cash managers is covered in Daily Cash Management: How Cash Managers See Into the Future.

Much like with AP and AR, the person responsible for cash management experiences particular hurdles in day-to-day operations, both in terms of accurately gauging account balances and properly forecasting expected cash streams. Forecasting presents numerous challenges and is based on receiving timely and high-quality data from other departments, especially AP, AR, payroll, and reports from the company’s bank. Financial institutions and vendors can act as key partners to streamline these processes, but they must have a thorough understanding of the specific needs and pain points that go into daily cash management.

There are several methods to help prep financial institutions partner with cash managers, including proactive capabilities that produce better and more up-to-date information, solutions that strengthen internal communication and data sharing, and better-quality analytics tools. Solutions that don’t take into account the POV of cash managers will get scrapped, much to the detriment of facilitating a better relationship between cash management and partnering financial institutions.     

Building Better Relationships

There are ample opportunities in the commercial banking sector for state-of-the-art technologies that ramp up automation and improve efficiencies. Financial institutions and vendors can deepen their relationships with various departments across client organizations through strong partnerships and role-specific solution offerings.

However, all too often, new products are developed and pitched to clients without a full understanding of the practitioners for whom these solutions are intended to help. When the solution is no longer used, sales staff find it easier to tell themselves that someone wanted to stay in their old ways rather than figuring out why the solution did not work for the team it was intended to help.

To end this cycle, solutions need to consider the practitioner POV, which means understanding the rules, procedures, and demands of the full workflow of AP, AR, and cash managers. When banks and vendors gain a true understanding of the workflows involved in these parts of a business, they can develop true solutions that not only facilitate, but actually improve business processes. These are the types of solutions that provide a win-win in the world of commercial banking.

For more information on how practitioners’ perspectives can shape banking solutions, and to learn more about AP, AR, and cash management processes, please reach out to us at [email protected] or [email protected].   

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