Cash Reconciliation: A Dilemma for Emerging Markets | Loop

maryam1013

July 27, 2023·3min read

In today’s digital world, cash payments are a hassle to manage, especially in emerging markets where the desired tech isn’t available or not developed enough. One of the biggest challenges these countries face is real-time reconciliation.

Manual cash reconciliation isn’t just time-consuming but also brings about a number of challenges that are not only difficult but costly to mitigate. For example, tracking lost funds doesn’t just take a lot of time but can also increase business expenses. Not to mention the additional manpower it takes to track and rectify such mistakes.

Countries like Pakistan, South Africa, Tanzania, Egypt, Nigeria, and other countries located in the Middle East, South Asia, or Africa are the ones that suffer the most from these added costs and increased hours.

In addition, companies operating in these emerging markets miss out on additional revenue that’s lost due to reliance on outdated practices. According to a report by PWC, on average, finance teams spend around 30% of their time collecting data and reconciling it. This time can surely be spent elsewhere to better optimise company finances. This also holds back companies from making progress and makes it harder for them to compete in more advanced and dynamic markets.

So what is it that keeps companies from automating their reconciliations and streamlining cash collections?

 

Customer behaviours

For starters, the number one reason is the customer’s reliance on cash payments. Customers in emerging markets often consider cash to be a more secure and hassle-free form of payment. Due to inadequate financial information and a lack of trust in financial institutions, these customers consider cash to be a safer option. As a result, companies have no choice but to invest their time and money in offering cash payments.

 

Unbanked population

But consumer reluctance isn’t the only issue here. Access to secured banking options is another major factor. According to a report by the World Bank, a staggering 1.4 billion of the world’s population doesn’t have access to a bank account. Around half of this population is in Asia — or rather, South Asia. The rest are distributed in other emerging markets, 25% of which are in Africa and 10% in Latin America. It’s important to note that the majority of these unbanked individuals are women who are considered prime customers for many retail and e-commerce companies.

 

Unavailability of appropriate tech

If we move on from customers and take a look at the companies themselves, it would appear that while they do have access to a wider human resource in such economies, they fall behind on the technology.
Creating and implementing reconciliation software isn’t as tasking, but keeping it secure and free from tampering is the main challenge. Even if companies have the tech available, it’s hard for them to be certain that it won’t be tampered with or used to launder funds. This can also be attributed to poor implementation of law and lack of accountability for those involved in such illegal practices.

 

Company’s attitude

In some instances, companies’ attitudes also carry a lot of weight when it comes to deciding which tech to adopt. Many times, companies in emerging markets prefer paying for cheap labour rather than investing in costly, but secure reconciliation software. In their minds, hiring a dedicated team for manual reconciliation is cheaper than subscribing to expensive software. In many instances, the country’s exchange rate also carries a lot of weight in this decision.

 

Training and awareness

Last but not least, training to use such technology across the board is another roadblock that many companies fail to overcome. When it comes to cash collection, businesses usually rely on third-party delivery companies rather than setting up an in-house team. Most of the labour hired by such delivery companies usually come from underprivileged backgrounds and struggle to learn and conveniently use technology. They prefer doing things the old-fashioned way, and it won’t be a leap of faith to say that most of the cash management software available can easily frustrate even the most educated and experienced individuals, let alone simple collection workers.

 

The downside

So it’s safe to say that there isn’t a single challenge that prevents companies in emerging markets from digitising their reconciliation process. Instead, it’s a challenge that affects several verticals. Nevertheless, there are still solutions businesses can implement to quicken their cash reconciliation process — or at least a part of it. Ultimately, not implementing such solutions impacts the company’s performance and revenue in the long run. It also prevents them from competing in international markets and diversifying their customer base.

 

Conclusion

While the emergence of digital wallets and other similar apps have increased the transfer of payments for the general public, they still don’t offer larger transactions, and if they do, people don’t trust such apps to utilise such options. Plus, the additional transaction charges discourage people from using them regularly. According to a report by Oxford Business Group, it’ll still take emerging markets a long time to surpass cash payments, provided that the unbanked population gets access to banking services at a steady rate.

At Loop, we believe in empowering companies and developing solutions that integrate into their process and not the other way around. That’s why we offer tailored solutions across many verticals, be it reconciliation software, cash collection, asset management, or invoice management. Our cash reconciliation solutions are designed to offer companies an option that doesn’t break their budget. If that’s something you’re looking for, take a look at our solutions, or get in touch with us to get one-on-one guidance.

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