I2C – a journey from Invoice to Cash The accounting & finance departments’ lingo can be quite mysterious for the neophyte. AR, AP, I2C. Behind the most opaque acronyms often lies a straightforward, easy reality. I2C, i.e. invoice-to-cash, is no…
The accounting & finance departments’ lingo can be quite mysterious for the neophyte. AR, AP, I2C. Behind the most opaque acronyms often lies a straightforward, easy reality. I2C, i.e. invoice-to-cash, is no exception. However, there is indeed an inherent mystery to that acronym, which encapsulates a whole story. From the I to the C, from the beginning to the process to the end, a narrative takes place, and many events can arise which might compromise the success of your cash conversion. Why do some invoices not turn into cash eventually? Why does the I2C process’ length fluctuate so much from one invoice to another? Apprehending the I2C process as a story involving a narrative arc could be your key to improving your bottom line. Here is why.
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Finance professionals need to grasp their I2C better to optimise cash flow. I2C challenges are so typical for businesses that one may think it’s fate. But it’s not, and you can change the course of the events and rewrite your narrative by understanding it.
In many aspects, the I2C process resembles a narrative arc, starting with an exposition, followed by a key trigger, rising action, a climax, falling action and a denouement.
You issue the invoice; that’s the exposition. Everything’s good in the best of worlds; you provided a good or a service and expect your due fees. You are full of hope and eager anticipation for well-deserved recognition of your services.
But day after day, you expect a payment that never arrives. That’s the rising action. The longer you wait, the bigger your disappointment grows and the sense of unfairness that comes with it. The dunning process starts; you need to remind your customers of their uncleared invoices. Many stressful and suspenseful actions can occur during the dunning process: late payments, overdue invoices, and lack of cash because of rising DSOs.
The collection is the climax; you finally receive your due payments. Your efforts paid off. But how much time and effort did it take to get there?
Security standards, recording in the accounts and managing disputes and litigations are all part of the falling action; they are essential steps to cut loose ends and bring the cash back to your books.
Reconciliation is your denouement. It’s the “Happily ever after” of your I2C when you reconcile invoices with payments and move on to a new story.
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From the first reminder sent to the actual collection of the invoice, from the rising action to the climax, the journey is eventful, and its issue is unpredictable. You need to minimise the risks of unpleasant events by anticipating them and asking yourself what could go wrong during the process.
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1) Inaccurate invoices: if your invoicing process contains errors, you set yourself up for problems. Have you thoroughly checked the billing format, customer information, and dates and verified the accuracy of all line items? Research from PYMNTS and American Express found that businesses relying on manual AR processes display a 30% longer average DSO than firms implementing automated collection processes.
2) Delay in following up on outstanding invoices: If you let too much time pass before following up on past-due invoices, your chances of getting paid proportionally decrease over time.
3) Inconvenient payment methods for the customers: If you make it hard for your customers to pay you, they will gladly take it as an excuse to procrastinate, consciously or not. Do you systematically include a link to payment in your communications with them? Do you have a seamless, straightforward online portal payment? Do you offer different payment methods to accommodate your customers?
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Relying on manual processes to manage your I2C process is expensive in the long run, as it encourages the risk of invoice errors and disaggregated data, hinders your workflow, and can sometimes negatively impact your customer relationships. Reducing the length of your I2C process by avoiding the common mistakes listed above is an actionable plan you can implement today to future-proof your financial operations.
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Clients pay their bills quicker when they receive their invoices immediately. Automated software generates professional and accurate final invoices when the deal appears in your books. No more invoice mistakes, duplicates, losses, or reconciliation burdens. Automating your invoice already sets you up for success and increases your collection’s likelihood of a fruitful outcome.
Then comes the dunning. Chasing customers is time-consuming if done zealously; automation is a game changer. For teams, automated solutions reduce inefficiency, human negligence and burnout associated with dunning. By saving up considerable time to focus on added-value tasks, automation is key to a better cash flow. In addition, the collection rates you can expect with an automated platform are much higher than with a manual process. Some automated solutions guarantee up to 90% recovery rate and five times faster collection. On the customer side, being chased by an automated system does not feel as personal as being chased by their main point of contact, which contributes to protecting the client relationship. With automation, the dunning ceases to hinder the I2C journey from invoice generation to collection.
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You can provide your customers with the best services, but if you fail to offer a seamless, pleasant payment experience, then you are not securing your customers’ satisfaction. Investing in an automated AR management solution to smoothen your I2C will grant your clients access to a payment portal and a one-step payment process to pay the way they prefer: Stripe, Direct Debit, ACH or EE transfer. Besides, every automated communication with your customers will contain a link to the payment portal for maximum convenience. If you want to avoid payment delays, you should never give your customers an incentive to procrastinate by making their payments too complicated or simply relying on their memory to trigger their will to pay.
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Building up a solid I2C protocol comes with many benefits, leading to an optimised cash flow.
• Reducing your outstanding payments by preventing them through an effective invoice strategy and enhanced credit control
• Accelerating your money cycle by speeding up your payments
• Cutting costs associated with manual processes and paper-based methods and inefficiency
• Deeper insight into your financial data. Decision-making regarding inventory, stock and other strategy-related questions becomes easier with a clearer picture of your cash flow, accessible to all, in one place, as a single source of truth.
• Enhanced CX, who can pay you easily, feel empowered, gain insight into their invoices and always feel individually addressed
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I2C’s length can negatively impact your business’s cash flow and working capital. The shorter, the better. But to ensure you keep the journey from invoicing to collection to the point, you must ensure you have the right shortcut. Delayed payments are not fate, and you can rewrite the I2C story if you want to. However, you need a solid strategy and the right tools to standardise your I2C process. Automation is the shortcut you need to make your I2C short and fruitful. And by choosing an integrated I2C application, you can leverage the power of technology without disrupting your existing system and teams with additional training and software.
