For suppliers in the transportation and logistics sectors, managing cash flow efficiently is critical, yet traditional payment methods and practices often stand in the way. In an industry with an average Days Sales Outstanding (DSO) exceeding 45 days, slow payment cycles erode working capital and stifle operational flexibility.
The complexity of billing structures—ranging from freight and warehousing charges to surcharges and penalties—further complicates reconciliation. Over 70% of businesses in this sector report challenges reconciling fragmented or incomplete remittance data, leading to significant unapplied cash. For an industry built on speed and reliability, these inefficiencies demand innovative solutions.
This article examines the causes of these delays, explores how suppliers are addressing them, and provides actionable strategies for building scalable accounts receivable (AR) processes.
Why Do Payment Practices in Supply Chain Delay Collections?
- Reliance on Checks and Manual Processes: Many businesses in the supply chain industry, particularly smaller companies and legacy operators, still rely heavily on checks for payments. This leads to slower transaction times compared to electronic methods. According to the Federal Reserve Payments Study, checks accounted for 11.2 billion transactions in 2021, with processing times averaging five days, creating cash flow gaps for suppliers.
- Fragmented Billing and Payment Structures: Logistics providers often deal with multifaceted billing arrangements that include charges for transportation, fuel surcharges, and warehousing services. Invoices for these services are frequently split across multiple payments, leading to complex reconciliation processes. A study by the American Trucking Associations (ATA) highlights that these fragmented practices result in delayed cash application, with transportation suppliers reporting persistent DSO challenges.
- Inconsistent Remittance Details: Payments often arrive with incomplete or non-standardized remittance information, making it difficult for suppliers to match them to the appropriate invoices. This leads to unapplied cash, disrupting cash flow visibility. A report by the Association for Financial Professionals (AFP) found that 71% of businesses face significant delays in reconciliation due to missing or fragmented remittance details.
How Suppliers can Build Scalable AR Processes
- Standardize Remittance Formats Across Clients: Encourage customers to adopt standardized remittance formats such as EDI or CSV. Providing templates and onboarding support ensures easier data collection and streamlines reconciliation.
- Bank Integration with ERP Systems: Automating payment data transfers from banks to ERP systems eliminates manual uploads. Real-time synchronization ensures payments are recorded promptly and accurately, reducing errors and delays.
- Automated Deduction and Adjustment Handling: Pre-configure rules in the ERP system to manage common adjustments like fuel surcharges, penalties, or discounts. Automation can reconcile partial payments accurately, reducing manual intervention.
- Centralized Payment and Dispute Tracking: Deploy a unified dashboard to track unapplied cash, disputes, and pending payments. Tools that consolidate AR activities allow teams to address bottlenecks quickly and improve transparency across stakeholders.
- Leverage Advanced Reporting and Forecasting: Use analytics tools to forecast cash inflows based on payment trends. Reports highlighting clients with chronic payment delays or discrepancies can inform targeted collections strategies.
Pros and Cons of Building an Optimized Manual Process
Pros
- Lower Initial Costs: Enhancing existing tools and processes avoids the expense of implementing new systems.
- Direct Oversight: Manual workflows allow for customized handling of unique client payment structures.
- Improves Incrementally: Small adjustments can yield noticeable efficiency gains over time.
Cons
- Labor Intensive: Requires significant human resources to manage growing transaction volumes.
- Scalability Challenges: As the business scales, manual processes become unsustainable, leading to bottlenecks.
- Limited Real-Time Insights: Delays in reconciliation and reporting hinder financial planning and forecasting.
When is AR Automation Required?
- DSO Remains Elevated: Consistently exceeding industry benchmarks (45 days or more) despite process improvements.
- High Unapplied Cash Rates: Persistent unapplied cash exceeding 10% of payments.
- Growing Complexity and Volume: Expanding client bases and diverse payment types that overwhelm manual processes.
- Customer Dissatisfaction: Recurring issues with payment disputes or delayed follow-ups.
The Case for Specialized AR Automation
- AI-Driven Payment Matching: Automation tools like Growfin use SmartMatch AI to accurately reconcile fragmented or incomplete remittance data. With 98% accuracy, payments are matched to invoices quickly, significantly reducing unapplied cash.
- Seamless ERP Integration: Growfin integrates with all major cloud ERPs, including SAP, and Oracle NetSuite. Its Built for NetSuite SuiteApp ensures real-time synchronization of payment data, providing suppliers with instant visibility into collections and balances.
- Comprehensive Automation Across Payment Types: Whether dealing with ACH, checks, or wire transfers, Growfin automates reconciliation for up to 80% of payments on the same day, ensuring efficiency even with high transaction volumes.
- Operational and Financial Gains: Suppliers using Growfin report a 33% reduction in DSO and a 27% improvement in cash flow. Automation also reduces manual effort by 60%, enabling AR teams to focus on strategic priorities.
Growfin supports supply chain leaders like FourKites and Locus by automating payment matching across ACH, checks, and wires with 98% accuracy. Its seamless ERP integrations, including NetSuite, provide real-time visibility into collections. With proven results—27% faster cash flow and 33% lower DSO—Growfin transforms AR in high-volume, complex environments.
Wrapping Up
For transportation and logistics suppliers, inefficiencies in traditional payment methods lead to delays in collections and disrupted cash flow. While optimized manual processes can provide short-term relief, they often fail to address scalability, real-time visibility, and the demands of complex payment structures.
By adopting specialized AR automation platforms like Growfin, suppliers can streamline cash application processes, achieve real-time payment reconciliation, and accelerate collections. With its AI-driven capabilities, seamless ERP integration, and comprehensive automation features, Growfin equips businesses to overcome industry challenges and drive sustainable growth.
