Cash application is the process of matching invoices with their respective payments. The analyst first has to gather the remittance advice sent by the customer, and then match them with their payments and invoices. Once this is done, the information has to be updated in the NetSuite ERP. Only after this process is done will we get a clear view about our working capital position, and get to know about any short payments or over payments made by the customer.
Payment and remittance aggregation
The payment and remittance information aggregation is the first step in cash application. Customers make payments through various channels. These include paper checks and electronic payment methods such as ACH, credit cards, and wire transfer.
After making the payment, the remittance is usually sent via email, EDI, web portals or mail.
Invoice matching and deduction coding
In order to formally close an invoice, analysts have to match them with their corresponding payment. While most cases are fairly straightforward, there could be exceptions. These include any short payments made by the customer, which then has to be tagged with the proper reason codes and be closed as soon as possible(every short payment taken by the customer has to be mapped to a proper reason for it to be considered a valid deduction in the ERP).
Cash posting to the ERP
Once invoice matching is done, cash is applied to the ERP, and open AR is updated.
Let’s take a brief look at how the cash application process is done in NetSuite .
It starts with the user manually searching for invoices from a list of all open invoices. Then the remittance information is tracked down and applied against the same.
How remittance aggregation works for different payment channels in NetSuite :
In order to process check payments, Netsuite users usually integrate with third party solutions for OCR features. This adds additional costs and risks to the project.
NetSuite AR users have to read the email body or open the email attachments to collate remittance information and manually update the data against the invoices. Hence, the time taken for remittance capture increases along with an increased chance of errors. This leads to delayed cash application and customer dissatisfaction.
Netsuite requires additional integration with web portals to extract remittance information. The implementation and maintenance has to be handled separately, thus increasing overheads.
Once cash is applied, the next crucial function is deductions. Deduction management, like cash application, is often a very manual and time intensive process.
In NetSuite, the AR team has to check with their customer manually about the payment being a partial or a short payment. Based on the communication from their customers, the AR team will generate an additional credit note for the adjustment. In the case of it being a valid deduction, the analyst has to manually select the appropriate reason code in NetSuite.
The cash application process starts when the customer makes a payment.
This is how an invoice is matched, provided the analyst has access to the remittance data. If the customer sends PO numbers instead of invoice numbers, then matching the payment becomes even more time consuming and challenging.
Manual remittance aggregation
Remittance aggregation is a very manual process in NetSuite . The analyst has to manually gather the remittance sent by the customer from various sources. They have to navigate through web portals, email inboxes and check stubs to find the remittance details. This is very time intensive and takes a large bandwidth of your employee’s workday.
Manual invoice matching and cash posting
With the payment and remittance information in-hand, now the analyst has to match it with the corresponding open invoice and close it. The invoice matching and cash posting also has to be performed manually.
Delayed dispute/deduction identification and recovery
As of now, the process of deduction management in NetSuite requires a lot of manual input. The analyst has to check the remittance advice to see if the customer has made a short payment or taken a deduction. They then have to reach out to the customer to know the reason. In case of a deduction, a credit memo has to be created to offset the difference. Delayed deduction identification leads to slower resolution and recovery.
HighRadius’ autonomous finance leverages intelligent automation to automate cash application – leading to reduction in required manual intervention and eliminates bank lockbox fees. With automation, cash application teams can ensure more than 95% straight-through cash posting at reduced operating costs.
HighRadius’ RadiusOne AR suite helps you automate cash application in following ways:
By leveraging template agnostic engines, RadiusOne is able to extract remittance data from complex web portals, email inboxes, and check stubs. This eliminates the hassle of manually tracking down and gathering remittance advice and frees up analyst bandwidth
Invoice matching and cash posting
The next step after remittance and payment information aggregation is invoice matching. The solution automatically matches transactions with their corresponding invoices. Once this is done, the information is automatically updated in NetSuite. This enables your employees to focus their time on more strategic tasks.
The solution is able to identify deductions at an early stage based on deduction codes and short payments made by customers. This enables faster resolution and recovery of funds.
This way the entire process, from remittance aggregation to cash posting, and deductions management is streamlined and fully automated when you plug HighRadius AR solution with NetSuite.
Having a lower DSO is crucial for every business. A low DSO indicates that the company is getting its payments quickly. The money can then be put back into the business to drive further growth. The faster you close your open invoices and update it into the ERP, the lower your DSO becomes. Thus, having a streamlined cash application process helps reduce your DSO.
Better decision making
By fast tracking the cash application process, you can enable your teams to work with real-time information. This helps in accurate reporting. Accurate financial statements are crucial from a regulatory standpoint as well as helps to get a clear understanding of how the business is doing. You can use that data to make important business decisions. Hence, faster cash application provides better visibility and aids in informed decision making.
Increased working capital
An efficient cash application process lets you identify deductions and disputes at an early stage. This can then be acted upon and resolved to recover funds faster. Having an effective cash application and deductions management process reduces revenue leakage and optimizes working capital.
As a mid-sized company, scaling quickly is key to remaining competitive. To support your hyper-growth initiatives, it is critical to review and optimize operational costs. Understanding your current working capital is the first step towards optimizing operational costs.
Having an effective cash application process in place gives you better visibility into your working capital while simultaneously improving cash flow by reducing revenue leakage. It’s for this exact reason you should consider complete cash application automation; to effortlessly manage and streamline your company’s cash application process.
Automate invoicing, collections, deduction, and credit risk management with our AI-powered AR suite and experience enhanced cash flow and lower DSO & bad debtTalk to our experts
HighRadius Integrated Receivables Software Platform is the world’s only end-to-end accounts receivable software platform to lower DSO and bad-debt, automate cash posting, speed-up collections, and dispute resolution, and improve team productivity. It leverages RivanaTM Artificial Intelligence for Accounts Receivable to convert receivables faster and more effectively by using machine learning for accurate decision making across both credit and receivable processes and also enables suppliers to digitally connect with buyers via the radiusOneTM network, closing the loop from the supplier accounts receivable process to the buyer accounts payable process. Integrated Receivables have been divided into 6 distinct applications: Credit Software, EIPP Software, Cash Application Software, Deductions Software, Collections Software, and ERP Payment Gateway – covering the entire gamut of credit-to-cash.