July 23, 2021

The Goofus and Gallant of Cash Application

Author

Robert Unger

Senior Director, Product Management & Strategic Initiatives

Your sales are humming along, bills and invoices are being sent to customers, and the payments are flowing back to your company—and there are a lot of payments.

That’s good news. But, that’s also where Goofus processes may lurk!

Remember Goofus and Gallant from “Highlights” magazine? I spent a lot of time at the dentist's office as a lad and had many opportunities to track the adventures and behaviors in that comic strip.

Well, to extend the metaphor to cash application, Goofus processing is mucking up the works.

Few Auto Payments

In a survey of mega-corporations Nacha conducted in collaboration with the Credit Research Foundation, more than half of the respondents reported that a paltry 0%-20% of payments were processed automatically, where invoices closed automatically, without manual intervention.

That’s a shockingly dismal rate for the 21st century and means that a lot of credit, receivable and related financial professionals spend too much time manually matching payments to invoices. The burdensome labor adds costs to payment acceptance, slows cash flow, and can damage customer relations (“Why don’t you have a record of my payment?”).

Now, it’s easy enough to blame “bad” customers for creating the Goofus mess. After all, it’s the customers that send partial payments, provide incomplete remittance advice in formats that are difficult to automate, take deductions that may not be warranted, and otherwise complicate receivables operations.

But, the good news is that Gallant can come to the rescue. There are corporations taking control of payment receivables, with some reporting astounding auto cash rates between 80%-100% (go Gallant!).

Improving cash application and hit rates provides significant cost savings and efficiencies and is indicative of a high-performing receivables process. The collaborative survey by Nacha and the Credit Research Foundation pinpoints the seven key differentiators between high and low-performing organizations with respect to cash application hit rates. The high performers’ hit rates were 80% and above; the low performers’ hit rates were 0%-20%.

The Goofus and Gallant of Cash Application
Differentiator	High Performers	Low Performers
Negotiate payment type	Specify or request ACH payments in credit and customer negotiations.	Let customers decide how to pay invoices.
Track payment metrics	Develop and track measures to monitor payment acceptance costs, operational performance and customer profitability.	Do not track payment costs, and are not sure how payment receivables costs impact customer profitability.
Payment type	Get paid via ACH.	Get paid by check.
Set receivables goals	Define goals and provide appropriate resources. Increasing ACH payments is a common goal.	Do not set receivables goals with respect to payment types and cash application hit rates.
Work with bank and vendor for information feeds	Receive remittance advice feeds directly from their banks or payment vendors, which can be automated.	Receive remittance via email and mail, which are difficult to automate.
Use standards	Receive payment remittance details in standardized formats like EDI and BAI2, which improves hit rates.	Get remittance in non-standard PDFs and spreadsheets, which adds processing costs and decreases hit rates.
Adjust attitude	Embrace ACH and other pathways, and report being much more satisfied with their receivables operations.	Are more likely to be dissatisfied with their receivables operations.

Here are some resources for promoting Gallant in your cash application operations:

ACH Consultation

Nacha Consulting is offering a free, 15-minute phone consultation to discuss your issues and evaluate options. Complete this form if you would like to connect with the Nacha Consulting team to discuss your organization’s ACH payment options, risk issues, Rules compliance, best practices or other concerns.

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ACH Resources

Nacha has numerous resources to help businesses better understand the benefits and best practices for ACH payments:

ACH in the Community – Learn the benefits of ACH for businesses, nonprofits and religious organizations.
Quick Start Guide – A tool for your business to learn how to pay or get paid electronically using ACH.