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Manufacturing Solutions - The Way Forward for Automating Manufacturing Sector Cash Flow

19-10-2022 5 Minutes read

The manufacturing sector has made significant strides toward automating its production spaces and generating better connectivity with its supply chains. To date, such efforts have not extended so successfully to the automation of financial processes. 

One main problem facing manufacturers is the long payment terms expected from customers, resulting in a potential lack of cash flow. Clearly, there is a manifest need to transform accounts receivable (AR) processes by matching payments automatically against outstanding invoices, thus speeding up payment processes.

Disconnected Finance in Manufacturing Solutions 

Manufacturing solutions in the United States have experienced a revolution. The digitized workspace is now a reality and one that has transformed both the production process and its technological performance beyond all recognition.

Paradoxically, US manufacturers have yet to embrace the limitless possibilities digital innovation offers in terms of financial process efficiency. Enterprise resource planning systems (ERPs) such as SAP systems offer capabilities to drive digitization in finance. In complex corporate structures with multiple entities, departments, and often different systems in place, achieving effective and fast processing and obtaining a global oversight of payments data can, however, be a challenge. What keeps manufacturers from taking bold steps toward innovation in finance? Often, the attention of manufacturers is bound as they are pressured to agree to protracted payment terms by customers may well agree, often to nurture good faith.  But inevitably, they then face potentially permanent, damaging cash flow issues.

To create a borderless world in which cash flows inwards reliably and regularly, US industries need to consider taking two interconnected steps in the right direction. First, quite simply, impose stricter control over debtor organizations. And second, manufacturing organizations should fully transform their AR processes, automatically matching payments with outstanding invoices which invariably speeds up all payments processing and thus improve cash flow and reduce DSO.


Existing Payments Process Impediments 

So, what operational issues currently impede better financial process management in the US manufacturing sector? How can these be resolved successfully to encourage a more ready inward flow of cash?

Global Supply Chain Disruption 

At the best of times, supply chain management, especially the financial management of the supplier’s own customers, is a major headache. Simply ask any director of procurement or finance, and the look they give you will say it all.

In times of crisis, this headache can transform itself into a major migraine. As we all witnessed, COVID had a significant, negative impact on global consumer demand, which all but collapsed before eventually resurging. And not surprisingly this strained supply chains close to breaking point. Manufacturing raw materials and components were scarce, while backlogs, shipping delays, and escalating costs became widespread. Specifically, the Statista supply chain index notes that the United States was and remains exposed to significant supply chain risk, while Global Data’s supply chain vulnerability index confirms that it is still vulnerable to worldwide supply chain instability. Inevitably, corporate cash flow continues to suffer from late payments and debt defaults, and the disruption has generated business insolvency.  

Skills Shortages

Recent job market research published by the Linux Foundation and edx confirms that globally, skilled tech talent is in decidedly short supply, a situation exacerbated by the recent Covid pandemic. Although the research suggests that hiring is recovering in the wake of Covid, 92% of the 200 managers surveyed were experiencing difficulties in recruiting the best talent. At the same time, companies were also finding it hard to keep hold of the talent they have in the face of significant competition from rival employers. 

The high technology sector has been particularly affected by the gap in skills. The impact of talent shortages was recently investigated by Gartner who, in their 2021-2023 Emerging Technology Roadmap, note that: 

Talent shortages are a rising and significant challenge for successful adoption of emerging technologies. This year, 64% of respondents feel that talent availability is the largest challenge to emerging technology adoption, compared with just 4% in 2020 and 14% in 2019. 

This begs a simple question to which there is no immediate answer. How can US manufacturers manage incoming cash flows successfully in the currently challenging international business environment, without the requisite skilled staff? Payment delays and a lack of skilled, qualified talent in accounts receivable that could handle the incoming payments is a significant problem that manufacturing organizations should address immediately if they are to successfully speed up inbound payments processes. Smart recruitment and the training of existing staff is one route to this. Introducing the right technology is, of course, another.  


Cash App Automation - The way to dealing with cash flow impediments 

Clearly then, recruiting difficulties and a real lack of tech talent are a problem for manufacturers seeking to up their AR game. To reiterate, delays in accounts receivable will invariably generate potentially damaging cash shortages because if manufacturing finance leaders are not fully aware of their cash balance, then there will be no funds available for investment or deficit reduction. Cash app automation, by its nature, must therefore be fast because it’s required to manage working capital and pay all bills. So how do today’s manufacturing innovators get there? 

Companies are adopting automation-related technologies on a selective basis and deploying several emerging IT automation manufacturing solutions to manage their financial operations. By fully automating the cash flow process from end to end the costs, financial and human, of manual data entry can in time be eliminated, match rates can be increased and exception handling can be significantly improved. This results in improved resource allocation, better payment reconciliation, and the ability to reduce DSO (days sales outstanding).

Organizations seeking to extend their digitization process beyond their manufacturing solutions would therefore be wise to migrate from existing ERP systems such as SAP ECC to the new SAP S/4HANA system, which will be an important step on the road to digitization. As such migration projects are usually rather complex and the need for enhancing cash app automation is pressing organizations now, it does make sense to focus on AR automation and integrate it with the new S/4HANA technology. Prerequisite for that is, of course, that any automation tool fits neatly into the SAP system so that no migration pains are incurred later on. The added benefit of prioritizing cash app automation is that artificial intelligence (AI) capabilities are able to power automation rates of up to 99% already today. Additionally, such focused tools rise automation to top levels for all types of payment information including bank statements, lockbox data, remittance advices, settlement files and more. This will be a huge relief for the manufacturing finance teams. Suffice to say that if implementing an ERP software package paid dividends in the manufacturing environment, then it will equally also do so in the financial processing space where it will automate data entry. 

Sure, migrating to SAP S/4 HANA will not resolve all of a company’s cash application issues, because late payers will always be a problem requiring human intervention. However, S/4HANA in combination with value-adding cash app automation tools will most certainly help to automate data entry and thus higher transparency and the opportunity for much more effective global financial strategic planning. In a nutshell, faster cash app automation means faster cash-in, which leads to optimized working capital. And in the cash flow management world, that is the name of the game.  

For further information about Serrala’s AutoBank cash app automation solution, check out our website to learn how you can increase cash flow, reduce dso, and automate data entry.

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