Integrated Receivables: The Next Frontier for Working Capital Optimization

Brian Coady

Brian Coady,
EMEA Market
Management, Treasury
and Trade Solutions, Citi

Edwin Ward

Edwin Ward ,
Global Product Manager,
Receivables, Treasury and
Trade Solutions, Citi

Today, high-performing organizations are looking for ways to manage their working capital more efficiently. This includes identifying opportunities to tap into additional sources of funding, boost operational efficiency, and increase profitability.


Historically, efforts to improve working capital have focused largely on accounts payable (AP). This approach is understandable since organizations have a high level of control over their AP processes and associated technologies. They decide who they pay, when they pay and how they pay. What’s more, in recent years organizations have generated considerable efficiencies and economies of scale by centralizing payment processes and consolidating activities into regional and global shared service centers.

Now, treasurers in growing numbers are turning their attention to accounts receivable (AR) to elevate and improve working capital even further. Receivables is widely recognized as an area that is ripe for efficiency improvements. The advent of artificial intelligence (AI) and machine learning (ML) have fueled new innovations that expedite and automate AR, creating significant opportunities for working capital optimization.

The Accounts Receivable Challenge

Unlike AP, AR is for the most part a passive process. Organizations are at the mercy of their payers in terms of how and when they are paid. The result is significant time being spent to determine who is paying for what and manually matching payments received with payments expected.

Over the past decade, more than 700 organizations participated in surveys that are part of the Citi® Treasury Diagnostics proprietary treasury analytics tool. During that time respondents, overall, reported that AR remained one of the weakest areas of their treasuries, compared to other treasury processes. Less than 50% of respondents, for example, have implemented a centralized AR structure at either a regional or global level. On the other hand, companies that do have centralized AR operations, on average, scored higher in areas such as straight-through reconciliation rates and the use of receipt on behalf of (ROBO) structures and electronic instruments, which are widely considered to be best-in-class.

To be sure, in their efforts to centralize and optimize AR organizations face numerous challenges, which in turn, inhibit their ability to improve DSO and working capital.


Shifting the Focus to Accounts Receivable

Treasurers do not necessarily have full line of sight of dayto-day receivables processes such as invoice management, dispute management, payer reconciliation and invoice matching. However, they have become increasingly interested in how optimizing AR can improve their own respective key performance indicators.

Facing continual pressure to meet their organizations’ liquidity needs and reduce their reliance on external funding, treasurers are now looking at opportunities to optimize receivables. More efficient collections and cash application, for example, reduces days sales outstanding (DSO), leads to better forecasting, and enhances the mobilization of liquidity for investing, funding and growth.

With the emergence of digital commerce, organizations in growing numbers are looking to re-invent trading models and sell directly to consumers. In turn, these organizations are increasingly turning to consumer-to-business (C2B) collections to support this activity. The likes of instant payments, open banking, request to pay, e-wallets and mobile payments are taking a more prominent position in their collections toolkit, further reenforcing the need for treasurers to play a central role in shaping and future-proofing their organizations’ AR roadmap.

Furthermore, both treasurers and credit managers are paying closer attention to improving AR as a means of optimizing credit control and driving business growth. The sooner an organization can apply collected cash to an open invoice, the sooner it can close out that invoice and replenish or extend the buyer’s credit facility. This, in turn, helps the buyer purchase more from the seller and stimulates business growth.

Emerging Technologies Defining AR Best Practices

With order-to-cash now firmly on the treasurer’s agenda, emerging technologies and bank solutions are empowering treasurers to own, influence and control what has historically been a passive and challenging element of working capital management.

Artificial Intelligence and Machine Learning

Cash application is typically a time-intensive and manual process. Identifying who the payer is and what a payment is for can be challenging when remittance information crucial to matching payments received to payments expected is missing, truncated or sent separately from the payment itself (e.g. via email). Solutions that automate cash application using AI, ML and predictive analytics help streamline the invoice matching process and increase straight through reconciliations rates by as much as 90% or more, in the process reducing DSOs. Additionally, the insights that corporations can mine from their systems as a result of these technologies fosters improved cash forecasting, more effective credit control, and better decision-making.

Electronic Invoice Presentment and Payment (EIPP)

The automation provided by EIPP platforms offers huge advances towards a fully integrated order-to-cash ecosystem. EIPP generates significant cost and time savings, for example, by digitizing the manual presentment of invoices and automating cash application upon the receipt of payments. By maintaining invoices on an electronic portal, organizations minimize opportunity for truncation of remittance information, a critical roadblock when trying to increase straight-through reconciliations. An EIPP portal also allows invoices to be tracked and provides transparency into the status of payments, which is unachievable in a paper-based process. EIPP platforms provide the added benefit of being able to easily identify, track and understand partial payments, invoices where discounts have been applied, and where multiple invoices are being paid in one bulked payment.

Virtual Accounts

New virtual ledger solutions, such as virtual accounts, also can alleviate reconciliation challenges, enhance liquidity management and facilitate the centralization of AR. While virtual accounts have been a hot topic for years, organizations have only recently started harnessing their full potential.

Virtual accounts allow organizations to notionally segregate their AR flows by buyer, business line, legal entity, or a host of other categories. They can significantly reduce efforts associated with reconciling incoming receipts by immediately identifying the sender, recipient or purpose of a payment and by consolidating liquidity in real-time for optimal control, utilization and deployment of funds.

Conclusion: Integrated Receivables Management

A fully integrated approach to receivables can help you improve your working capital management. When it comes to reengineering AR processes, organizations should consider their own specific objectives and pain points and successfully adopt all or elements of the best practices being recommended to make their AR transformation as successful as possible.

Leveraging the latest tools, technologies and innovations, Citi offers the experience and expertise to help today’s working-capitalminded enterprises automate receivables processes to better support their business growth, reduce risks and increase operational efficiency. Citi® One Receivables, an integrated and comprehensive set of digital receivables solutions, includes three distinct modules: Present, Collect, and Reconcile & Report. It also includes a set of advisory tools that support strategic planning and help companies identify ways to streamline their receivables and support business growth.