When is a ‘hit rate’ not a ‘hit rate’?
Cash application solutions often make bold claims about the 'hit rates' they can achieve, but what do these numbers actually mean, are they really as impressive as they sound, or is this all smoke and mirrors?
Account level or invoice level?
There is no standard set definition of what a 'hit rate' is with respect to cash application. Many suppliers refer to the 'hit rate' as the percentage of payments matched to the correct customer account or the Account Level. At Rimilia, we say the 'hit rate' is the percentage of payments that are matched to the actual invoice or invoices that it was meant to pay, or the Invoice Level.
It's important to understand the difference between the two, and which one is being quoted, because they are very different and there are huge implications. Unwitting buyers often think they are getting one when they are actually getting the other.
To be clear, matching at the Invoice Level needs to be done. Otherwise, the balance sheet would reflect a large balance of Unapplied Cash and an equally high balance of Open Invoices, leading to additional manual activity and unhappy auditors.
Applying to account level just gets you into the neighborhood. You then need to go the rest of the way on your own. What good is that? The real challenge comes on applying to invoice level.
In many respects, automating the application of cash to the account level just gets you into the general neighborhood. You then need to go the rest of the way on your own.
In most cases, this means the Cash Application team has to manually work out which individual invoices are being paid. Matching payments to the right combination of invoices is a much more complicated and time consuming task that often requires handling thousands of data points, calculating different combinations of invoices, and lots of emails. All this manual work still has to take place, even after the “automated solution” had a hit rate of 95%!
When we talk about hit rates, we mean payments fully matched to the invoice level. Our hit rates of 92% on average are 'complete’ hit rates. Fully matched and booked to the GL, from start to finish, without any human intervention. This approach is so different from any other solution that people don’t believe it will work. But it does, and our customers are delighted. The secret lies in the power of the machine learning.
So the next time you are told that a solution boasts a ‘hit rate’ of 90% or more, ask them to prove they are matching at the invoice level. Or else you will find yourself doing most of the work yourself.
Manual vs Automatic
Lockbox providers often quote a very high hit rate for their services, and may even appear to reach them. But what is missing from this story is that the hit rate is not really automated. The lockbox service delivering these high hit rates is actually doing so with a very manual process, involving rooms full of people manually keying in the data.
You may ask, "what does it matter if it's automatic or manual if I achieve the same results?".
The answer is that you don't! While a high hit rate from manual lockbox keying can appear good service at first glance, the reality is that it is an extremely expensive, inefficient and manually intensive process. It is also prone to human error.
It's not unusual for lockbox providers to charge between $1 and $4 per check, which can quickly add up to annual bills of hundreds of thousands of dollars! No small expense for any company!
With Rimilia's Alloc8 cash software, you can eliminate the need for manual lockbox keying and the huge cost that comes with it. You get higher match rates by using our advanced self-learning engine that can match on multiple data sets, not just invoice or account number.
What's more, Rimilia's Alloc8 Cash doesn't make keying errors (which you have to pay for), doesn't take days off for vacation, and doesn't even require remittance information to work!
Check your hit rate!
With significant differences in what 'hit rates' mean, it's essential for any finance professional to understand how the impressive stats are calculated and what the solution will actually deliver.
Are you getting software that applies to the invoice level? Or is it just at the account level? Are you paying significant amounts for lockbox hit rates, rather than saving time and money with intelligent solutions that eliminate the need for manual keying?
Rimilia's Alloc8 Cash solution boasts up to 98% automatic hit rates to invoice level and can save you hundreds of thousands of dollars in lockbox keying costs. Why not check out our eBook 'The Biggest Problem with Lockboxes and How to Fix It' to learn more about the benefits of automated matching and how it can benefit accounts receivable.