Cash posting is a fundamental process in accounting and finance that involves recording incoming payments, matching them to the corresponding invoices, and syncing them back to the ERP or accounting system. While it may seem straightforward, the manual process can be time-consuming and error-prone.
In this article, we’ll explore the basics of cash posting, its importance, and how automation can streamline the process.
What is Cash Posting?
Cash posting is the process of recording and applying incoming payments to customer accounts or invoices and posting them back to ERP or accounting software. It involves updating the accounting records to reflect the receipt of payment and to ensure that each payment is correctly allocated to the corresponding invoice or account receivable. It is an essential part of maintaining accurate financial records and ensuring that payments are correctly applied to customer accounts.
When a customer makes a payment, whether by check, credit card, or other means, the payment needs to be recorded in the company’s accounting system. This process involves updating the accounts receivable ledger to reflect the payment and matching it to the specific invoice or account it corresponds to.
For example, if a customer pays an invoice for services rendered, the payment needs to be recorded as received and applied to that specific invoice to show that it has been paid. This ensures that the company’s financial records accurately reflect its income and liabilities.
Who is Responsible for Cash Posting?
Responsibility for cash posting typically falls on the cash posting specialist of the accounts receivable team. This role involves receiving and posting payments, processing refunds, and making adjustments to customer invoices.
Why is Cash Posting Important?
Accurate cash posting is crucial for several reasons:
Financial Accuracy
Proper cash posting is essential for maintaining accurate financial records. It ensures that the company’s cash flow and financial position are correctly reflected in the accounting records. By accurately recording payments received and matching them to the corresponding invoices or accounts receivable, companies can avoid errors in their financial statements and ensure that they have an accurate picture of their financial health.
Customer Relationships
Timely and accurate cash posting is crucial for building and maintaining good relationships with customers. When customers make payments, they expect them to be recorded promptly and accurately. By ensuring that payments are posted quickly and correctly, companies can provide customers with clarity on their payment status and reduce the likelihood of disputes or misunderstandings. This can help enhance customer satisfaction and loyalty.
Decision Making
Accurate cash posting provides valuable insights into the company’s financial health, which is essential for making informed decisions. By having accurate and up-to-date information on cash flow and receivables, companies can make better decisions about resource allocation, investment opportunities, and overall financial strategy. This can help companies identify areas for improvement, seize growth opportunities, and navigate challenges more effectively.
Steps in the Cash Posting Process
Let’s dive into the steps involved in cash posting:
1. Get payment from the customer, like cash, check, or card.
2. Match the payment with the right customer account by checking invoices or balances.
3. Write down the payment amount, date, method, and other important info in the accounting system.
4. Put the payment towards the correct customer account to update the accounts receivable ledger.
5. Check the ledger to ensure all payments are recorded correctly and fix any mistakes.
6. Contact customers with outstanding balances to collect payments and update records.
By following these steps, businesses can keep their cash posting process accurate and efficient, reducing errors and improving financial health.
What Documents Are Involved in Posting Cash?
Several documents are involved in cash posting, including invoices, which detail the products or services provided, the amount owed, payment instructions, and due dates. Remittance advice accompanies payments and provides additional information for identifying the payment’s purpose and allocating it to the correct invoice and general ledger account.
What are the Challenges of Manual Cash Posting?
Manual cash posting is a labor-intensive process that involves receiving payment information, identifying the corresponding invoices or accounts receivable, and recording the payment details in the accounting system. This process is often done using spreadsheets or manual entry into accounting software, which can be error-prone and time-consuming. Some common challenges associated with manual cash posting include:
1. Errors and Reconciliation Issues
Manual data entry can lead to errors such as misallocated payments, incorrect invoice matching, and discrepancies between payment records and accounting entries. These errors can result in inaccuracies in financial statements and reconciliation issues.
2. Time-Consuming Process
Manual cash posting can be a time-consuming process, especially for organizations with a high volume of transactions. This can lead to delays in updating financial records and reporting, impacting decision-making and cash flow management.
3. Limited Scalability
Manual cash posting is not scalable, especially for organizations experiencing growth or dealing with a large number of transactions. As transaction volumes increase, the manual process becomes increasingly inefficient and prone to errors.
4. Lack of Visibility
Manual cash posting can result in a lack of visibility into cash flow and payment status. This can make it challenging to track and manage outstanding invoices, leading to delays in payment collection.
5. Incomplete Payment Information
Insufficient or separate remittance details provided by customers make it challenging for AR staff to accurately match payments with invoices, leading to delays in processing and increased error risk.
6. Diverse Remittance File Formats
Managing various remittance formats (e.g., emails, PDFs, web portals) poses a challenge for AR teams, requiring manual effort to consolidate data, which can lead to inefficiencies and errors.
7. Dispute Resolution Complexity
Resolving payment disputes, including deductions and overpayments, requires meticulous review and communication with customers. Lack of clear information and documentation prolongs the resolution process, impacting cash posting efficiency.
What are the Key Best Practices to Manage Cash Posting?
Following the below listed best practices can help businesses streamline their cash posting processes, reduce errors, and improve overall efficiency and accuracy in handling payments.
- Establish clear and consistent procedures for receiving, recording, and reconciling payments to ensure accuracy and efficiency.
- Separate responsibilities for receiving, recording, and reconciling payments to prevent fraud and errors.
- Reconcile accounts regularly to ensure all payments are accurately recorded and any discrepancies are promptly addressed.
- Track metrics such as cash posting accuracy, processing time, and outstanding balances to identify areas for improvement.
- Keep customers informed about their account balances and payment statuses to maintain positive relationships and reduce inquiries.
- Utilize cash application solutions to automate repetitive tasks, such as matching payments to invoices, to improve efficiency and reduce errors.
What are the Benefits of Cash Posting Automation?
Automating the cash posting process is essential for efficiency, and a cash application solution can help achieve this goal. Here are some benefits of automating your cash application process:
- Efficiency: Automation speeds up the cash posting process, reducing manual effort and allowing staff to focus on more strategic tasks.
- Accuracy: Automated systems reduce the risk of human error in posting payments, leading to more accurate accounting records.
- Faster Processing: With automation, payments can be posted and reconciled more quickly, improving cash flow and reducing the risk of late or missed payments.
- Cost Savings: By reducing manual effort and improving efficiency, businesses can save on labor costs associated with cash posting.
- Improved Cash Flow Management: Automation provides real-time visibility into cash positions, helping businesses make more informed decisions about cash flow management.
- Enhanced Customer Experience: The faster and more accurate posting of payments can improve customer satisfaction by reducing errors and providing timely updates on account balances.
How Peakflo Helps to Streamline Cash Posting Process?
Streamline your operations and enhance customer satisfaction with Peakflo’s Cash Application Automation solution. Peakflo streamlines the cash posting process by offering several key features.
- Utilizes OCR technology to extract remittance data which is then used to match payments with invoices, reducing manual effort and minimizing errors.
- Integrates seamlessly with ERPs and accounting software, ensuring that all cash postings are accurately reflected in your accounting records in real-time.
- Allows customers to view and apply payments to invoices directly through Peakflo’s Customer Portal. This reduces the need for back-and-forth communication and streamlines the cash posting process.
- Enables automated payment reminders to customers with unapplied payments, prompting them to apply the payments through the customer portal.
- Provides visibility and tracking of transactions, allowing you to monitor and manage the cash posting process easily.
