Rapid shift towards organised trade channels from unorganised channels, is leading consumer goods and product companies to adopt artificial intelligence and machine learning to improve their working capital cycles.

While this move to modern trade channels like e-commerce platforms and large format stores was inevitable given the change in buying patterns of consumers and the impetus on digitalisation, it has presented the companies with some complex accounting challenges, and a lot of issues around reconciliation of payments are cropping up.

Each organised customer follows different processes for claims management, payment advise and reconciliation. The terms and nomenclatures they use are different for each company leading to multiple reconciliation methodology.

A senior executive from a large FMCG company told FE that with general trade, they could define the terms and nomenclatures to be used, which is not possible with the organised players. “As the business is growing with these customers, it is leading to massive reconciliation issues. Also, these reconciliations need to happen in a time bound manner, and with differences on nomenclatures it is becoming difficult with someone having to go through line item by line item, do the tick-marks, use excels to the fullest and do these reconciliations,” he said.

It is making it hard for companies to reconcile payments manually, leading to long periods of dispute settlements and elongated 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 come down by about half, and improved reconciliation timings.

Global PayEX, a working capital optimisation company, with a focus on automating accounts payables and receivables processes has automated upto 98% of accounts receivables for some of the big consumer goods and product companies. 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 frictions with differences in invoice formats, reconciliation of deductions, and requirement for physical checks, among other issues.

Ramamoorthy said that manual intervention makes it a tedious and time consuming exercise. However, with solutions like the one offered by his company, machines are able to extract the invoices, the debit notes, credit notes, and are able to read these documents, extract the values, compare them with company’s bank statements to ensure that the money to be received has hit the bank.

According to Ramamoorthy while invoice reconciliation is a relatively easier challenge, deductions is a complicated problem to solve, and which is impacting the working cycles of companies. For instance, if a deduction is made in an invoice and it is non-authorised then the company will have to raise a dispute with the customer. “In manual process, it would take about 10 days to just getting back to the customer to say that the deductions made were incorrect. However, with automation this can be reduced to two to three days. So, the faster the company is able to go back to the customer and say that the deduction is unauthorised, and the faster the client pays back—it will improve the working capital,” he said.

To be sure, the senior executive from the FMCG firm FE spoke to said that earlier, around 20-30% of the money used to be stuck because of deductions. “Now as the reconciliation happens much faster with automation, the working capital cycle is reduced by 5-7 days, which is huge for many FMCG companies.”

According to Ramamoorthy, with machines helping in claiming back unauthorised deductions there is a full audit trail and it stops leakages, and also prevents them from write-off with faster reconciliations. “Typically 0.5% of revenues are written off across industries globally as a result of leakages emanating out of non-reconciliation of deductions,” he said. In India, the figures would be slightly higher, given that modern trade is relatively new here, said the FMCG executive.

Saranyan Rajagopalan, executive vice president (finance) and CFO, TTK Prestige said, “Using ‘AlgoriQ’ we have been able to solve our crucial pain areas and provide a seamless reconciliation process. It has automated every step including identification of commission and deductions, accounting them into respective ledgers, and transferring entries to payables. There is a lot of time and effort saved, and there are much fewer instances of accounting errors.”

Jyotsna Sharma, chief financial officer, Bridgestone India said, “With automation we have been able to overcome some of the longstanding challenges around manual processes that we face operating in this market while staying compliant with regulatory requirements.”