HomeAccount ReceivablePropel Your Finance Functions with Cash Application Automation

Propel Your Finance Functions with Cash Application Automation

Managing the accounts receivable process is a critical function for any organization, and cash application plays a pivotal role in this process. It entails connecting purchase orders, invoices, and customer accounts with the appropriate incoming payments. However, manual cash application processes can be time-consuming, and error-prone, and lead to delayed or inaccurate posting of payments, impacting other business processes and relationships with customers.

Automating the cash application process can help businesses optimize their accounts receivable processes and manage cash flow better. Businesses may use technology to mitigate mistakes, increase productivity, and obtain real-time visibility into their cash inflows. This not only allows for more informed judgments but also increases forecasting accuracy and encourages business growth. 

In situations where businesses receive numerous customer payments daily, manual cash application can lead to delays in cash posting. Cash application automation can significantly speed up this process, ensuring that payments are promptly applied to open accounts receivable.

What are the Steps in the Cash Application Process?

The cash application process involves matching incoming payments with open invoices to ensure payments are recorded accurately and promptly. Cash application teams accept a variety of payments, including checks, ACH, wire transfers, and card payments, and match them to the associated invoices to mark them as paid.

Here are the key steps in the cash application process:

  1. Collect Payment and Remittance Data. Gather information about incoming payments and any accompanying remittance advice.
  2. Match Payments to Invoices. Compare payment details with open invoices to identify and mark invoices as paid.
  3. Handle Exceptions and Deductions. Address any discrepancies or deductions by investigating and resolving them.
  4. Post Cash to the ERP. Record the payment information in the organization’s ERP and accounting system.
  5. Handle Any Remaining Exceptions. Address any outstanding issues or discrepancies that may arise during the process.
  6. Finalize Cash Posting. Complete the posting process to ensure all payments are accurately recorded in the ERP system.

Why do you Need to Automate the Cash Application Process?

In a manual cash application, a specialist or an accounts receivable employee matches each payment and remittance to the corresponding invoice by checking the customer name and number on the invoice. This information is then recorded in the company’s ERP system for future reference.

Manual cash application is labor-intensive, time-consuming, and challenging to scale. There’s also a risk of human error.

66% Reduction in transaction processing costs with Cash Application automation. – Hackett Group

Cash application automation helps businesses reduce their dependence on human resources. This leads to improved productivity and faster cash application rates.

Automated systems can properly match payments to open invoices, handle exceptions and deductions, and immediately post cash to the ERP system. This enables accurate and timely financial reporting.

Furthermore, cash application automation can cut operating costs by streamlining accounts receivable processes and eliminating the need for manual tasks like data entry and reconciliation.

What are the Advantages of Cash Application Automation?

Cash application automation offers a myriad of benefits, ranging from reducing errors to improving efficiency and customer satisfaction. By leveraging automation, businesses can streamline their operations and gain a competitive edge in today’s fast-paced environment. Let’s delve deeper into the advantages of cash application automation.

1. Error Reduction

Cash application automation reduces the risk of errors that can occur during manual matching. Common inaccuracies such as decoupled remittances, incorrect discount terms, and missing characters from invoices are prevented. This ensures that payments are accurately matched to invoices, leading to fewer discrepancies and customer dissatisfaction.

2. Time Savings

Cash application automation solutions eliminate the need for manual data entry, saving valuable time for the accounting team. By automatically matching payments to invoices, these solutions significantly increase the efficiency of the accounting process. According to a report from PYMNTS.com, companies that have deployed AR automation reported faster processing speeds and improved efficiency.

3. Improved Cash Flow

Automating the cash application process allows payments to be matched to invoices more efficiently. It means that funds are validated and associated with invoices faster, improving cash flow. With quicker access to funds, businesses can use the money for other expenses sooner, increasing agility and financial flexibility.

4. Lower Operating Costs

Manual processing of invoices is labor-intensive and time-consuming, leading to higher operating costs. Additionally, errors in the manual process can result in additional costs to correct mistakes. By automating the cash application process, businesses can reduce the costs associated with manual processing and errors, leading to cost savings over time.

5. Enhanced Visibility

Automation of the AR processes provides real-time and accurate financial records, improving visibility into cash flows. This allows financial executives to have better insight into the company’s financial health and make more informed decisions. By having access to up-to-date financial information, businesses can better manage their cash flow and plan for future growth.

6. Scalability

Manual cash application processes can become increasingly more difficult to manage as sales volume and the number of invoices increase. Cash application automation allows businesses to scale more effectively as they grow. Automated solutions are designed to handle high volumes of payments and invoices, ensuring that businesses can keep up with their growth without compromising efficiency.

7. Enhanced Customer Service 

Cash application automation can improve customer satisfaction by reducing payment errors. Common mistakes such as missing discounts or invoicing a customer who has already paid can damage customer relationships. By automating the process, businesses can reduce these errors and provide a more efficient and accurate payment experience for their customers.

8. Centralized Financial Processes

Integrating cash application automation into an ERP system centralizes accounts receivable data. This consolidation improves organization and efficiency within the finance department, making it easier to track and manage payments and invoices.

9. Support for Finance Teams

Automation of the cash application process frees up time for finance teams to focus on more value-added activities. Manual entry tasks, such as AR payment matching, can be replaced with more efficient automated options, allowing finance teams to be more productive and effective in their roles.

10. Increased Security

Cash application automation solutions can enhance security by reducing the risk of internal check fraud. By limiting access to payment information and automating processes, businesses can reduce the likelihood of fraudulent activities and protect their financial assets.

Streamline Accounts Receivable Operations with Peakflo’s Cash Application Automation Solution

Streamline your operations and enhance customer satisfaction with Peakflo’s Cash Application Automation solution. Say goodbye to manual chasing of customers for cash application and let Peakflo handle the entire process seamlessly. 

Set Up Workflows for Unapplied Payment

With Peakflo, you can set up workflows for unapplied payment reminders to customers based on your reconciliation frequency, allowing them to indicate which invoices they are paying for. 

Workflows for Unapplied Payment

Allow Customers to Apply Payments Against Invoices

Customers can easily view their unapplied payments and apply them to correct invoices with a single click, including partial payments. Each customer gets a dedicated Customer Portal for easier payments and automatic reconciliation, reducing the burden of adding payment details for every transaction. This eliminates the need for back-and-forth communications and provides customers with greater visibility and control over their payments.

Apply Payments Against Invoices

Centralizes Your Customer Communications

Allow customers to reply to unapplied payment reminder emails. Customer replies are captured in Peakflo’s centralized dashboard, ensuring that no customer reply is missed. Peakflo’s finance CRM enables your accounts receivable team to apply payments or respond to customer queries directly from the platform.

finance CRM

OCR for Remittance Capture

Allow customers to email their payment receipts to a designated OCR email. The OCR feature automatically creates unapplied payments from the scanned receipts and applies them to overdue invoices based on the reference number. Your AR team can easily edit and validate the details, making cash application a breeze.

OCR for Remittance Capture

Match Transaction Details

Peakflo enables you to easily identify which customer is making a payment by providing unique virtual accounts for each customer. This fast and secure payment method eliminates the hassle of adding payment details for every transaction, ensuring a seamless payment experience for your customers.

Match Transaction Details

Effortless Cast Posting

Peakflo makes cash posting effortless by automating reconciliations and syncing the data to your accounting software. Integration with your accounting software is seamless, allowing you to become error-free and eliminate bank statement errors and transaction mismatches.

Cast Posting

Related Articles

Latest Post