Cash application plays a critical role in managing the accounts receivable process of any organization. It involves matching incoming payments to the correct customer accounts, invoices, and purchase orders. Manual cash application processes are often time-consuming, error-prone, and can result in delayed or inaccurate posting of payments. This can create a domino effect on other business processes, leading to delayed payments to vendors, inaccurate financial reporting, and strained relationships with customers.
Automating the cash application process can help organizations streamline their accounts receivable operations and improve cash flow management. By leveraging technology to automate cash application, businesses can reduce errors, improve efficiency, and gain real-time visibility into their cash inflows. This can help finance leaders make better-informed decisions, improve forecasting accuracy, and drive business growth.
Cash application is a critical process in managing accounts receivable and cash flow. It involves matching incoming payments with open invoices to ensure accurate and timely posting of payments. Cash application teams receive checks, ACH, wire or card payments and they match those payments with the outstanding invoices to mark them as paid.
However, this seemingly simple process can be complicated and error-prone due to several factors, such as incomplete or inaccurate remittance advice, discrepancies between payment amount and invoice amount, and deductions taken from payments.
Here are the six major steps that cover the cash application process flow:
Organizations need to adopt strategies that streamline operations for a more efficient and error-free cash application process. Here are six proven methods that can elevate your cash application process:
Simplify the collection of payment and remittance data by utilizing digital tools. Automated data extraction from various sources can save time and reduce errors.
Harness the power of automation to match payments with open invoices accurately. Automated matching algorithms can swiftly identify and link payments to corresponding invoices.
Develop predefined workflows for handling exceptions and coding deductions. Streamlining this process can help reduce delays and errors in cash application.
Seamlessly integrate your cash application system with your ERP (Enterprise Resource Planning) software. This ensures efficient cash posting and keeps your financial records up to date.
Conduct periodic reconciliation audits to ensure your cash application process is operating smoothly. Identify and rectify any discrepancies promptly.
Keep a close eye on key performance indicators (KPIs) such as cash conversion cycle, cash forecasting accuracy, and deduction resolution time. Use these metrics to identify areas for improvement and continually refine your cash application process.
Automating the cash application process can bring significant benefits to organizations in terms of efficiency, accuracy, and cost savings. Manual cash application processes can be time-consuming and error-prone, leading to delays in posting payments and strained relationships with customers.
Additionally, organizations end up spending a lot on FTE costs, processing fees for third-party vendors, or bank lockbox key-in fees, making cash application an expensive process.
By automating the cash application process, businesses can reduce their reliance on human resources and bank lockbox fees. This results in increased productivity and faster cash application rates.
Automated solutions can match payments to open invoices accurately, handle exceptions and deductions efficiently, and post cash to the ERP system in real-time, ensuring accurate and timely financial reporting.
Automation of cash application can also reduce operating costs by streamlining accounts receivable processes and eliminating the need for manual data entry, reconciliation, and fetching. With more than 95% straight-through cash posting rates, businesses can reduce their processing costs and improve their bottom line.
Automating your AR cash application process can revolutionize your financial operations. Here are the six key benefits of cash application automation:
Automation significantly speeds up the cash application process. This means faster payments posting, reduced backlog, and a more streamlined AR workflow.
Say goodbye to lockbox key-in fees with the help of AI-based technology that accurately captures check remittances, resulting in substantial cost savings.
Improve your team’s productivity by automating remittance capture from various sources, freeing them from repetitive, non-value-added tasks.
Automatically extract remittances from multiple sources, including emails, checks, customer websites, and AP portals. This streamlines the process and accommodates various file formats and languages.
Let automation handle the identification of short payments and map reason codes to ERP-specific deduction codes, ensuring accuracy and reducing manual work.
Speed up deduction resolution, even when dealing with missing remittances. Our system can predict potential remittances, reducing the need for manual customer master data maintenance and ensuring seamless operations.
By embracing cash application automation, your business can reap these benefits, significantly enhancing financial efficiency and success. Next, let’s explore the vital aspect of selecting the right vendor for automating cash posting.
When choosing a vendor for automating cash application, it’s crucial to consider the benefits and features of their solution. This chapter will help you develop a business case for implementing an automated cash application system, focusing on identifying and quantifying the benefits of the solutions provided by various vendors
To choose the right vendor, here are the questions you should ask before buying or implementing the solution:
Implementing an automatic cash application solution can require significant internal IT effort. With HighRadius’ AI-based Cash Application Software, you can minimize that effort. The solution is designed to work seamlessly with your existing ERP, eliminating the need for additional IT efforts. HighRadius’ cloud-based solution also ensures that you don’t have to re-code RPA systems every time there’s a new payment or remittance format.
It is essential to consider the cost of the solution while choosing any vendor. HighRadius’ automation tool offers a budget-friendly annual payment scheme for organizations of all sizes. Additionally, the ROI from HighRadius’ other implementations with customers has been significant, improving financial health and cash application processes.
Customization is crucial when it comes to automating your cash application process. HighRadius’ cash application tool is highly customizable, and the vendor can custom-build features based on your business requirements. This makes the solution purpose-built for your specific needs, ensuring maximum benefits.
An automated cash application solution should not only follow a set of rules but should also assist in decision-making. HighRadius’ AI and ML-based proactive exception-handling features enable the solution to self-learn from the exceptions and analyst behavior in the past. This allows for better decision-making and proactive handling of exceptions.
When evaluating vendors, it’s essential to consider these factors to ensure that the selected solution meets your business needs and provides maximum benefits. By choosing HighRadius as your vendor for automating cash posting, you can benefit from key features such as 100% automated remittance aggregation, automated invoice matching, and faster exception resolution. HighRadius’ solution is purpose-built, and customizable, and assists in decision-making, providing maximum benefits for your business.
The Cash Application process in O2C can be automated, and across industries, the A/R teams have achieved more than 95% 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.
Automated cash application provides numerous benefits such as improved efficiency, reduced errors, faster exception resolution, and enhanced cash flow visibility. It also frees up time for your finance team to focus on more strategic tasks, making your organization more productive and profitable.
Maximize efficiency & improve cash flow visibility with HighRadius' AI-driven cash application software