For most successful firms, the management of customer payments is no longer just a set of essential but fairly mechanical processes.
Treasury is playing an increasingly strategic role, according to 84 per cent of finance professionals in an AFP study. And the reason most commonly cited is the growing importance to business of cash management and liquidity.
That's partly because the availability of bank liquidity and trade credit insurance continue to lag behind the levels seen before the financial crisis.
Small firms feel this disproportionately, says Ian Fleming, Managing Director, Working Capital Advisory at HSBC: "We've seen smaller companies getting squeezed more than the larger companies which have strong access to capital."
In this environment, efficient management of receivables has become key to releasing cash and providing strong working capital for growth opportunities.
Unlocking that potential is rarely straightforward, however. Price deflation, a constant pressure on margins and the extension of customer payment terms make finance managers' task more difficult. Volatility in some Middle East markets compounds the challenges.
Fleming advises firms to start by benchmarking. Comparing key efficiency yardsticks such as days sales outstanding (DSO) against those of direct rivals will uncover opportunities. "Among a group of six or seven competitors, you will often find that one has taken control of its working capital and is really driving through improvements," he says.
Better knowledge and partnerships within the supply chain can help companies to become more agile and adaptable to customer demands. And internal communication is even more critical, Fleming says.
Finance professionals who engage with colleagues across the company can improve performance by establishing a "cash culture", he says, since so many parts of the business touch on the receivables process.
An increasing number of companies are turning to outsourced solutions to help them achieve efficiency in their accounts receivables – now seen as "the lifeblood of a company", says Amy Ng, Global Head of Receivables, Payments and Cash Management at HSBC.
Simple streamlining of complex accounts processes can unlock working capital. Ng points to the solution devised for an Indian consumer goods retailer to streamline its hugely complex accounts processes.
Issuing thousands of invoices each month and paying in bulk settlements, the company had to manage a high number of adjustments and labour-intensive reconciliation. The bank established a single, automated collection system, focusing on the firm's top eight clients (see diagram above).
When payments are received, all the retailer has to do is send the remittance files on to the bank, via an e-banking platform or its usual banking channels. The bank then links these files with the corresponding credits received, and then matches them against the invoice records.
Critically, says Ng, the solution does not require the client's customers to change their payment acceptance methods: "Keeping the payment process unchanged for their key customers helps in the implementation, because it avoids potential resistance from their customer.
"Banks with an established expertise will be able to offer a solution that requires minimum change in your payments practice and the payment behaviour of payers.
"And banks with a sufficient global footprint can deliver the same solution across multiple markets in a standardised manner – bringing further streamlining and centralisation opportunities globally."
Reconciliation is carried out by the bank, and the reports delivered to the retailer for uploading into its accounting system. The solution is designed to handle specific reconciliation rules, such as early payment discounts for selected customers.
In fact, 90 per cent of the company's invoice reconciliations are now automated – streamlining the receivables management process by at least two days.
Those reclaimed hours have a big impact. "Cash is injected back to the business two days earlier, to finance other operations and investment," says Ng. "And the manpower savings are substantial – our solution is helping the company to reduce 50 per cent of staffing, who are able to work on value-added activity elsewhere in the business."
Many more businesses seem set to turn to such solutions. According to AFP, cash management and forecasting is treasury leaders' top area of focus for 2016 – underlining the acknowledged power of working capital.
"Working capital is a growth enabler," Fleming concludes. "It's not just something you need to look at when there's a downturn – it actually grows your business."
 2014 AFP Strategic Role of Treasury survey
 2014 AFP Strategic Role of Treasury survey
Disclaimer: This article is not intended to constitute any advice or an offer. Any forecasts or projections are indicative only. HSBC or any of its affiliates accepts no liability, whether express or implied, arising out of or incidental to contents forming part of the article.