Top 10 Proven Tips For Automating Your Cash Application Process

What you’ll learn


  • What are the various steps involved in cash application process flow
  • 10 steps or best practices to automate your cash application process
  • Learn how automation in cash application can help you achieve more than 95% straight-through cash posting

Cash application is an important part of accounts receivable processes. If cash is accurately or timely posted, the senior finance leaders would have a better visibility on the cash inflows. This blog intends to walk you through the nitty-gritties of the cash application process and how automation can result in fewer exceptions and better cash application rates.

What is the Cash Application Process Workflow?

Cash application is a process where incoming payments are applied against open invoices. Cash application teams receive checks, ACH, wire or card payments and they match those payments with the outstanding invoices to mark them as paid.

Seems pretty simple? It’s not. The possibility of making errors while applying payments to open invoices is high because of various reasons. Let us dive deeper to understand how cash application is done and the challenges involved in it.

How is Cash Application Done?

Cash Application teams perform the following tasks in their day-to-day work:

1. Aggregating Payment and Remittance Data

2. Matching Payments to Open Invoices

3. Handling Exceptions and Coding Deduction

4. Cash Posting to the ERP

Steps in the cash application process flow

Why does Cash Application need to Be Automated?

The majority of the resources in the cash application team are burdened with low-value manual tasks such as re-keying remittances, reconciling and fetching data, and matching invoices. This impacts their productivity and makes cash application a slow process. Additionally, organizations end up spending a lot on FTEs costs or processing fees for third-party vendors or bank lockbox key-in fees – this makes cash application an expensive process.

An automated cash application system generates less reliance on human resources and bank lockbox fees. With automation, cash application teams can ensure more than 95% straight-through cash posting rates with reduced operating costs.

10 Tips to Automate Cash Application Process

Let us understand what are the top focus areas that any A/R leader should consider while automating their cash application process:

1. Capture of Remittances from Multiple Sources

You should automate the capture of remittance details across emails(both email body and attachments), web portals, EDIs, and other formats. Additionally, it is important that you accept all standard file formats, including CSVs, PDFs, JPEG, PNG, XML, HTML, excel.

2. Accurate Capture of Check Remittance to Reduce Lockbox Key-In Fees

To reduce dependency on bank lockbox key-in fees or in-house resources, cash application teams should leverage AI-based OCR engines to accurately capture check stub information. This is how they can eliminate lockbox key-in fees.

3. Automatic Linking of Remittance and Payments for
e-Payments

For electronic payments, customers send cash remittances through emails, EDIs, or even upload them to their A/P portals. Cash application teams manually extract these remittances and map them to the incoming payments with the correct invoice number, payment data, etc. However, exceptions often arise due to incomplete and non-standard remittance information. Organizations should implement automation to automatically link payment and remittance files for e-payments.

4. Customer Identification for Incoming Payments

As soon as the payment information is received, the cash application system should be able to auto-match the payments to the customers’ open invoices. Customer identification takes place through customer reference fields such as MICR and IBANs for checks and account numbers in the case of e-remittance and payments.

5. Handling & Mapping Complex Parent-Child Relationships

Mapping payments to customers is often complicated due to the parent-child relationships. In some scenarios, sales invoices are closed on a parent account level, but the deductions are posted at the child level. Technology should help your cash application teams to identify and map parent-child relationships in the customer master to avoid exceptions during cash posting.

6. Open A/R Invoice Matching and Exception Handling

Cash application teams often encounter exceptions such as missing remittance information or incorrect invoice number. This leads to unapplied payments or, sometimes, delays in cash posting. How could you prevent unapplied and misapplied payments?

The answer is through automation. Cash application automation should be able to match invoices to payments even in exceptions with the help of AI-based technology.

7. Short-Payment Identification and Application of Reason Codes

Sometimes, customers make short payments and might not share the reason code information how you expect them to. An ideal cash application tool should identify short payments and map the customer-provided reason code to your internal reason codes.

8. Post Cash Directly to Your ERP

Cash application automation tools should be able to generate output files that are compatible with any ERP system. This requires the capability to generate file formats as per the particular ERP system’s requirements, including BAI, EDI, and several others. Therefore it reduces the manual effort to reconfigure the file, and the cash directly gets posted to the ERP system.

9. AI and Machine-Learning to Contextual Intelligence

Cash application teams would ideally want to encounter lesser exceptions so that they can spend more time on root-cause analysis. With the help of AI and machine learning algorithms, the automated cash application tool can self-learn from the exceptions and the analyst behavior in the past so that these exceptions can be automatically resolved in the future without human intervention.

10. Generate Performance Metrics and Reports

Automation in cash application should help A/R managers and executives to monitor day-to-day activities, analyst KPIs, and cash application process metrics. With intuitive reports and dashboards, the C-suite will be able to analyze the performance of the cash application process in O2C on a global and regional scale.

How to Automate Cash Posting? Choose the Right Vendor

This chapter will help you develop a business case for implementing an automated cash application system, focusing on the ways to identify and quantify the benefits from the solutions provided by various vendors:

Following are the questions you should ask your software providers before buying or implementing the solution:

1. IT Effort:

  • How much internal IT effort is required?
  • Does the solution work with our existing ERP or additional IT efforts are required?
  • Will we need to re-code RPA systems every time there’s a new payment or remittance format?
  • Is your solution on-premise or cloud-based?

2. Cost :

  • Does the automation tool have an annual or monthly payment scheme?
  • What is the ROI from your other implementations with customers?

3. Purpose-built:

  • How customizable is your cash application tool? Would you be able to custom-built features based on my business requirements?

4. Decision-making:

  • Will it merely follow a set of rules or will it also assist in decision-making?

The Bottom Line: Is It Possible to 100% Automate the Cash Application Process?

The Cash Application process in O2C can be automated, and across industries, the A/R teams have achieved more than 98% straight-through cash posting.

While the cash posting rates differ with industries because of their unique business problems, organizations should always focus on improving their cash application process and analyst productivity.

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HighRadius Cash Application Software enables the end-to-end automation of the cash application process that covers major benefits such as AI-enabled data capture for remittances, auto-linking of payments with open invoices, cost-cutting on lockbox fees and easy compatibility with any system due to its ERP-agnostic Saas infrastructure. Apart from the major benefits that it has, there are some key features which can not be missed out, some of them are Email Remittance capture, Discounts and Deductions Handling, Check Remittance Capture, Web Remittance Capture, Invoice Matching, and RDC & Mobile Payments.