Cash posting is the process of entering payments received from customers into the business’s accounting records.
However, there is much more to the process than simply entering payment information.
In the modern era, payments can come in many forms, including check, credit card, and various forms of digital payment, as well as cash.
Much of this is done with the aid of computers, but there are many details that accompany payment which must be entered correctly.
Payments must be matched with the appropriate customer, invoice, and accounts receivable. The variety of platforms that transmit payment can make accuracy in this process complicated.
The process of applying payments to the correct account is referred to as cash application.
In cash application, accountants match incoming payments to outstanding invoices and to the proper account where they can be entered.
Cash application is an essential process for businesses to track cash flow and capital so that funds can be utilized efficiently, accurately, and quickly.
Cash posting is an essential function in the accounts receivable (AR) process. Accounts receivable, or AR, refers to money that is owed to the business.
This is for goods and services that have been provided, but for which the customer has not yet paid.
Cash posting is an integral function in the AR process because it allows the business to identify and assign incoming payments to the appropriate receivable, or unpaid, invoices.
Cash posting and cash application also impact a metric known as Days Sales Outstanding (DSO). This refers to the average number of days it takes a business to collect payment for products and services provided.
Cash posting and application are relevant to DSO because when done properly and efficiently, they help keep the average number of days to a minimum. The lower the DSO, the more efficiently the business is operating.
Cash posting poses many challenges in the digital world.
Payments can come in many forms, such as credit card, electronic debit, ACH, wire transfers, and checks.
Many of these transactions are transmitted separately from the information that details the transaction. Customers may also pay for multiple invoices in one lump sum, the amount of which will not match any one transaction in a company’s accounts receivable journal entries.
The growing use of web portals to process online transactions adds a layer of complexity to cash posting and application.
On the other hand, automation has also made it easier to match incoming payments.
Cash application software is capable of digitally capturing payments from a variety of sources, matching them to the corresponding invoice, and entering this information in the general ledger without the need for a human, or a team of humans, to do the same.