Cash Application Process: How Intelligent Automation Goes Beyond Matching Payments


Why Is Cash Application Important?

Cash application helps companies correctly match payments to open sales invoices and efficiently process payments. It also provides full visibility into cash flow and outstanding customer debt balances.

Cash application performs several important functions for a business. A poorly executed cash application process can unnecessarily delay and impede the proper running of your business operations.

For example, funds received from a customer cannot rightfully be applied to the business until they have been properly verified and associated with an open sales invoice. Once done, the money can be channeled into the business’s cash flow and may be applied to other important aspects of the business, such as payroll, purchases, or dividends.

Until the transaction has been properly verified and reconciled, cash cannot be released to help your company run smoothly and efficiently.

Cash application also impacts customer relations. Most B2B customers make purchases on credit. An accurate and timely cash application process ensures that the customer’s credit is in good standing, outstanding payments have been processed, and a new cycle of sales can begin.

Customers whose payments have not been reconciled will remain in arrears, and can impact the continuation of supplies. This typically happens if the wrong decision to suspend the supply of services or goods has been made when the cash is waiting to be processed to a customer’s account.

What Are the Biggest Challenges of Manual Cash Application?

Historically, cash application was done through a manual process. Payments were usually made by check, which was accompanied by the remittance that detailed the transaction and the customer’s information.

AR professionals verified that the information provided on the remittance matched that on the check and customer’s account. Once completed, this information is keyed into the company’s accounts receivable and customer accounts.

Technology has dramatically changed the cash application process, as it has so many other things in business and in life. But technology can be a blessing and a curse.

On the plus side, electronic payments have given customers many more options.  Payments now come in many forms, such as credit card, electronic debit, ACH, wire transfers, and old-fashioned checks.

This new range of options for customers is a challenge for cash application specialists. Data from transactions now has to be retrieved from multiple sources. Much of this information is now received at different times and can make the process challenging—albeit in a different way than before.

Customers may also submit remittance for multiple invoices in one lump sum. The amount of which will not match any one transaction in your customer’s sales ledger account. The growing use of web portals to process online transactions also adds another layer of complexity to cash application.

All these options have made it more complicated for companies to apply cash. Because there are so many different forms of payment, and because payment is separate from the invoice, the process of cash application for businesses remains a time consuming and tedious challenge.

The Advantages of Automated Cash Application

On the plus side, for businesses and organizations receiving payments, technology has given companies an advantage in the form of automation, which has made it easier to match incoming payments from customers.

Cash application automation is capable of digitally capturing payments from a variety of sources, matching them to the corresponding invoice(s), and sending the information to the sales ledger and the summary to the general ledger. This is all done without the need of a human or a team of humans.

Here are the three key advantages of automated cash application.

Automated Cash Application Is Faster

The manual process requires your accounting team to perform multiple low-value manual tasks, such as re-keying remittances, fetching data, and reconciling individual payments with the correct invoice.

AR professionals have to gather information from a variety of sources, including emails and web portals. Once gathered, they will review the details, such as the customer name or invoice number on the remittance, then post it to the outstanding sales invoices on the customer accounts.

This can be a tedious and slow process. Many businesses also incur costs or processing fees for third-party vendors or bank lockbox key-in fees.

Software can do all the things your team is now burdened with—gathering data, matching payments to invoices, and entering the information into your general ledger—in a fraction of the time.

By achieving a much higher rate of straight-through cash posting, automation helps businesses get away from those bank lockbox fees.

Automated Cash Application Is Smarter

All the customer choices for payment created by technology have made the cash application more complex. AR teams have to match payments from multiple sources, and electronic payments that don’t accompany their remittance require a closer look to make the correct application.

Lump sums for multiple purchases have to be broken down and reconciled because the amount won’t correspond to any particular invoice. Payments through web portals put even more distance between remittance and the accounts receivable they match with.

Imagine the time and energy it takes a person to go through all these processes to correctly apply payments to open sales invoices. Then consider how much faster, easier, and more accurately digital technology can perform the same functions.

Software programs will significantly reduce the incidence of error and increase accuracy in your application process. This, in turn, reduces the amount of rework often associated with this process.

Some software platforms use artificial intelligence (AI) that can recognize your customers’ bank information and other details. This speeds up the cash application process and improves accuracy.

Through machine learning, a transaction is applied manually the first time, and the software will recognize the source and make the connection for all future transactions—even when a remittance does not accompany payment or the information is incomplete.

Automated Cash Application Is Scalable

Technology is always changing. Those changes impact the market and how your customers behave. Using AI and machine learning, your automated cash application software will allow your business to stay ahead of these changes.

With automated Cash Application, you can add capability to process a range of payment options. New forms of payment will not throw your cash application a curveball. As your customers’ needs evolve, their changing forms of preferred payment won’t slow you down. This will make your business more resilient in an ever-changing marketplaces.

You’ll be able to accommodate a wide-ranging customer base, and most importantly, your business will be better positioned to grow.

Discover how AR automation can deliver value to your entire business, reducing manual activity by as much as 85% and collecting more cash.