The rapid shift to organized commerce channels from unorganized channels is driving consumer goods and product companies to embrace artificial intelligence and machine learning to improve their working capital cycles.
While this shift to modern commerce channels like e-commerce platforms and superstores was inevitable given changing consumer shopping habits and the push for digitalization, it presented businesses complex accounting challenges and numerous reconciliation issues. payments are increasing.
Each organized customer follows different claims management, payment advice and reconciliation processes. The terms and nomenclatures they use are different for each company leading to a multiple reconciliation methodology.
A senior executive from a large FMCG firm told FE that with general trading, they could define the terms and nomenclatures to be used, which is not possible with organized players. “As the business grows with these customers, it leads to massive reconciliation issues. Also, these reconciliations have to happen in a limited time frame, and with the differences in BOMs, it becomes difficult for someone to have to go line by line, do the checkmarks, use Excel to the fullest and do these reconciliations,” he said. said.
It is difficult for businesses to manually reconcile payments, resulting in long dispute resolution periods and lengthy working capital cycles.
However, with technology, companies like Amul, Marico, Hutamaki, TTK Prestige, Britannia, Bridgestone, Sany, 3M, RR Kabel, among others, are seeing their working capital cycles roughly halved and reconciliation times improving.
Global PayEX, a working capital optimization company, which focuses on automating accounts payable and accounts receivable processes, has automated up to 98% of accounts receivable for some of the major consumer goods companies and of products. The company’s chief revenue officer, Narayan Ramamoorthy, told FE that unlike consumer payments through digital platforms like UPI or Bharat Pay, B2B payments face a lot of friction with differences in bill formats, reconciliation deductions and the requirement of physical checks, among other issues.
Ramamoorthy said the manual intervention makes it a tedious and time-consuming exercise. However, with solutions like the one offered by his company, the machines are able to extract invoices, debit notes, credit notes, and are able to read these documents, extract the values, compare them to the company’s bank statements to ensure that the money to be received has reached the bank.
According to Ramamoorthy, while invoice reconciliation is a relatively easier challenge, deductions are a complicated problem to solve and which impacts business work cycles. For example, if a deduction is made on an invoice and it is not authorized, the company will have to raise a dispute with the customer. “Under a manual process, it would take about 10 days to respond to the client and tell them that the deductions made were incorrect. However, with automation, this can be reduced to two to three days. So the quicker the business is able to get back to the customer and say the deduction is not allowed, and the quicker the customer pays back, that will improve working capital,” he said.
Admittedly, the senior executive at FMCG that FE spoke to said that previously about 20-30% of the money was tied up because of the deductions. “Now that reconciliation is happening much faster with automation, the working capital cycle is reduced to 5-7 days, which is huge for many FMCG companies.”
According to Ramamoorthy, with machines helping to claim unauthorized deductions, there is a full audit trail and this stops leaks, and also prevents them from being written off with faster reconciliations. “Typically, 0.5% of revenue is amortized in industries around the world due to leakage resulting from unreconciled deductions,” he said. In India, the numbers would be slightly higher, given that modern commerce is relatively new here, the FMCG executive said.
Saranyan Rajagopalan, Executive Vice President (Finance) and Chief Financial Officer of TTK Prestige said, “By using ‘AlgoriQ’, we were able to solve our critical issues and provide a seamless reconciliation process. It automated every step, including identifying commissions and deductions, posting them to the respective ledgers, and transferring entries to payables. There is a lot of time and effort saved, and there are far fewer accounting errors. »
Jyotsna Sharma, Chief Financial Officer of Bridgestone India, said, “Thanks to automation, we have been able to overcome some of the long-standing challenges with manual processes that we face in this market while remaining compliant with regulatory requirements.