Cash Application in Latin America

What to think and what not to

Boleto. Heard of the term? Maybe. But you might be wondering why this blog starts with a word. Well then, ask yourself the following questions.

• Are you looking for expansion in Latin America?
• Are you perhaps based there already, but have issues with your Cash Application?
• Do you want to learn more about consumer behavior and how it affects the Order to Cash cycle?

Regardless, this blog has got you covered.

So, What is a Boleto?

Addressing the elephant in the room, a Boleto is essentially an invoice with a bar code and is one of the most frequently used electronic transfer methods of payment used in Brazil. The frequency of use is high, at a whopping 61%, dwarfing credit transfers which comprise 36% and check payments, at a measly 4% rate. A Boleto is more than just an invoice and plays a key role in tracking customer payments, and makes it convenient for companies to process these payments; because more often than not, they are generated by the banks themselves, and are put on ERP systems, which are then sent to the customers. It might be hassle-free for some companies, but the same isn’t true for all customers. Syngenta (in Brazil) for example, is one such company that uses Boletos. They’re an agriculture-based company, with their main clientele varying from the range of MNCs to small farmers. Now, it might be easy for companies to use and process Boletos. But farmers and other smaller customers face major issues in not being able to understand how this mode of payment works. They often do not have access to all information and at times lack technological fluency. Even the large customers face challenges in processing a Boleto as its time-consuming.

What Latin America Prefers

Expansion in Latin America has always been an issue. The trends in the Cash Application process depend significantly upon customer behavior and this is a major glitch when outsourcing to Latin America. Over the years, even with massive technological advancements in AR, customers still prefer tangible processes, such as direct deposits, rather than using online payment gateways. The main challenge is to make the buyer feel safe about using online payment formats or checks and instilling confidence in them. This may seem easy, but it is a long process.

Their Customer Behaviour

Often customers change their views according to the circumstances. The automatic processes stand no chance when Lat-Am is taken into consideration. So when countries like Argentina, Mexico, Paraguay, and Chile make the jump from manual operations to automation, they may face problems. Even with good implementation and policies, Argentina and Mexico have managed only 30% automation, Paraguay is still at 15% and Chile stands at zero percent, but measures are being taken to improve. There are success stories, such as Poland, which achieved 70% automation, but peculiarities on the far side of the ocean shouldn’t concern you. Talking about Brazil, there is 70% automation already, which is good, but there is always scope for improvement. Considering Syngenta, the use of the Cash Application process through online portals is encouraged. However, when the small customers (farmers) preferred to pay through direct payment methods, it became a supplier’s nightmare to find the payments. And this process was done manually which in turn made the Cash Application process slow and inaccurate. Therefore, automation bridged the gap between buyer and supplier and made the whole task a lot more feasible. Also, manually processing AR posed the issue of manpower and labor, as more often, companies simply did not have the strength required to go through all the data physically. In the case of Syngenta, it required ~4000 people to get through all the invoices they received.

What the Future Holds

Research shows that the majority of the Brazilian population spend most of the time on their phones, be it for business or personal usage. Taking into consideration the problems faced by customers using ERP systems and the current customer behaviors, implementing a mobile-based platform for AR could be the next big thing. Especially when it is easier to use mobile applications for credit transfers. Having a shift from ERP to the mobile application could also eliminate major hurdles faced by both the suppliers as well as the buyers. For Syngenta, the switch to mobile application could bring in a vast difference and possibly be beneficial for cash transits. The Future of Fintech not only understands the typical customer’s psyche but also develops trust for online portals. Since there are still countries around Latin America where automation is not in full swing, these practices could make a better change, if not the best. The Lat-Am Network works on both manual and automatic functions. So it’s pretty clear that the Cash Application process throws curveballs, and to tackle them, effective strategies and cash application automation need to be put in place. Through Syngenta’s example, a lot of changes have been put in place in Brazil.