4 Steps to Achieve a Higher AR Reconciliation Rate
With today’s relentless focus on working capital management, speeding up the order-to-cash cycle, and improving DSO, AR reconciliation is more critical to a company’s financial health and performance than ever.
AR reconciliation, as every credit pro knows, is the application of all cash or electronic receipts on time against the company’s current open accounts receivable. It is also known as cash application or operational reconciliation—as distinct from financial reconciliation. Operational reconciliation is the specific concern of AR, financial reconciliation of the company’s treasurer.
For AR, the higher the AR reconciliation rate is, the lower the DSO, the faster cash is available to the company, and the more rapidly credit lines can be freed up to enable more sales.
What Is Your AR Reconciliation Rate?
Given the crucial role of accurate and timely cash application, it may surprise AR managers to learn that a Citi survey found only 37 percent of corporations had an AR reconciliation rate (“hit rate”) above 80 percent (see graphic).
A hit rate of 90 percent or higher is considered optimum—the level at which limited manual intervention is necessary. Fully 17 percent have a rate ...